JPM 2017 (JP Morgan Healthcare Conference)

January 9-12, 2017; San Francisco, CA; Day #2 Highlights – Draft

Executive Highlights

Day #2 of the JP Morgan Healthcare Conference – happening in our hometown San Francisco! – featured some fantastic news from a modest Dexcom CEO on standout 2017 results and from a new Lilly CEO on GLP-1 agonist Trulicity. We also heard updates from Sanofi, mySugr, Omada, and more and attended sessions focused on novel type 1 diabetes therapies, the drug pricing debate, and what to expect in healthcare from the upcoming Trump administration (10 days until Inauguration…). See below for our top 14 highlights from the day, broken down into sections for diabetes technology, diabetes drugs, and big picture themes.

In case you missed it, you can view our day #1 highlights report here, and read our full conference preview here! Still a lot to come on Wednesday, including Abbvie, Becton Dickinson, Lexicon, IBM Watson (in its first presentation here ever), Zealand, and others.

Diabetes Therapy

1. In his very first conference presentation and address to the investment community since stepping into the CEO role (following 20 years at Lilly), Lilly’s Mr. David Ricks demonstrated an impressive grasp of Lilly’s diabetes priorities (pretty much he didn’t skip a beat and he talked HEAPS about diabetes) and the science and policy driving it and provided a number of notable details on GLP-1 agonist Trulicity’s performance (but could it really be out-pacing Victoza, Novo Nordisk’s biggest product?). Overall, Mr. Ricks highlighted both Trulicity and BI-partnered SGLT-2 inhibitor Jardiance as major drivers of growth for Lilly in the remainder of this decade - surprisingly, there was little mention of biosimilar insulin glargine Basaglar. We liked hearing some of the nitty-gritty about Jardiance being tested for heart failure …

2. Sanofi CEO Mr. Olivier Brandicourt acknowledged that Sanofi has faced headwinds lately, particularly with regards to flagship Lantus (insulin glargine), but emphasized the long-term upside to the company’s overall performance due to its significant portfolio expansion efforts. Mr. Brandicourt’s presentation largely focused on the progress of Sanofi’s six major new product launches, three of which are in diabetes and cardiovascular: Toujeo (U300 insulin glargine), Soliqua (insulin glargine/lixisenatide), and Praluent (alirocumab). The story for all three drugs, in our view, is very much “wait and see” given the stiff competition in each of these therapeutic areas. Notably, Sanofi confirmed that the phase 3 program in type 2 diabetes for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin has initiated.

3. In an engaging panel discussion at the Biotech Showcase on upcoming type 1 diabetes therapies, Protomer’s founder Dr. Alborz Mahdavi emphasized the potential of glucose-responsive insulins while Semma Therapeutics’ Mr. Robert Millman spoke to the possibilities in beta cell replacement therapy.

4. Drug pricing continued to be a hot topic at JPM, with management from several pharmaceutical companies maintaining that their drugs are priced appropriately in breakout sessions. J&J is taking the bull by the horns by publishing regular pricing updates.

5. Sernova President and CEO Dr. Philip Toleikis reviewed the clinical progress of the company’s Cell Pouch System, a thin, implantable, beta cell encapsulation device currently in phase 1/2 for type 1 diabetes treatment.

Diabetes Technology

6. Dexcom announced record-high sales for 4Q16 ($168 million, 28% YOY growth), a patient base of ~200,000 globally, and expectations for $710-$740 million in sales for 2017 (25%-30% YOY growth). Four launches are planned for 2017, including the non-adjunctive (insulin-dosing) label claim later in 1Q17 (very strong marketing here), the Android version of G5, the new touchscreen receiver, and the one-touch inserter and lower profile transmitter (G5x). CEO Kevin Sayer gave a very strong and confidence-inspiring presentation.

7. To our disappointment, Abbott did not share timing updates for the US approval and launch of the FreeStyle Libre consumer version. CFO Mr. Brian Yoor reminded the packed ballroom that the innovative device is available in Europe (200,000+ users), was submitted to FDA in 3Q16, and that Abbott “looks forward to bringing the product to the US market in the future.”. The “1Q17” launch timing last shared in 2Q16 still seems highly ambitious.

8. mySugr shared that it has signed deals with two German payers to manage their populations with a bundle of unlimited test strips, a connected meter, and coaching for $850 per year (~$71 per month). Wow!

9. According to Livongo CEO Mr. Glen Tullman, over half of the of the Fortune 100 is using or in contracting (intend to move forward) with his company’s cellular-enabled BGM and remote coaching service (in just two years since launch), and his lofty objective is for 80% of the Fortune 500 to be by the end of 2017. He added that 79 companies will be added to the platform in the next 90 days!

10. Omada Health’s Mr. Adam Brickman provided a number of updates: (i) Former Sanofi Global CMO Dr. Paul Chew has been brought on board t0 serve as Omada’s CMO; (ii) new modeled data shows that Omada’s Prevent Program delivers a financial return on investment before year two; and (iii) the company is moving toward “precision prevention for chronic disease.”

11. Bigfoot Biomedical CEO Jeffery Brewer reiterated plans to enter a pivotal trial in mid-2017 and discussed the promise of automated insulin delivery. He said each hypoglycemia-related hospitalization costs $33,700. None of these hospitalizations should ever happen, of course.

12. Privately-held Panasonic Healthcare Holdings’ Dr. Hito Kotani shared some details on Ascensia Diabetes Care (formerly Bayer), including an estimated 20% BGM market share globally (#3), 10 million global users, and possible plans to develop a CGM.

13. WellDoc CEO Mr. Kevin McRaith announced that BlueStar, WellDoc’s type 2 diabetes management software, soon will not need a prescription. He added that this development “opens up a lot of operational flexibility with payers and employers.” There were no updates on the planned 1Q17 launch of the recently cleared integration with the LifeScan Verio Flex BGM.

Big Picture

14. Down the street from JPM, several sessions at the Biotech Showcase Conference were dedicated to a topic of looming uncertainty: the future of healthcare under the Trump administration.

Table of Contents 

Diabetes Therapy Highlights

1. New Lilly CEO Mr. David Ricks on Trulicity, Jardiance, and Basaglar

In his very first conference presentation and address to the investment community since stepping into the CEO role, Lilly’s Mr. David Ricks demonstrated an impressive grasp Lilly’s diabetes priorities and provided a number of tantalizing details on once-weekly GLP-1 agonist Trulicity’s (dulaglutide) performance. Mr. Ricks highlighted Trulicity’s strong uptake in the diabetes market, despite its status as the fifth-to-market GLP-1 agonist facing the highly “entrenched” Victoza (Novo Nordisk’s liraglutide). Indeed, Mr. Ricks shared that, two years after launch in late 2014, Trulicity surpassed Victoza in terms of total prescriptions (TRx) – wow! Based on Lilly’s presentation slides, both Victoza and Trulicity have enjoyed strong upward trajectories in TRx in the US in the last two years, though Trulicity’s is noticeably steeper and appears to be accelerating while Victoza’s appears to be plateauing somewhat. Mr. Ricks emphasized that Trulicity has also served as an instrumental catalyst for overall GLP-1 agonist growth, with class growth more than doubling from 13% year-over-year (YOY) at Trulicity launch to 29% YOY as of this week. That said, 29% YOY growth is a slight dip from the high of ~35% in the first half of 2016 – we’ll have to see if this is a short-term dip or a longer trend as new classes such as SGLT-2 inhibitors gain popularity. We’re very curious to learn more details about GLP-1 agonist market dynamics when the major GLP-1 agonist companies report their 4Q16 earnings (Lilly on January 31, Novo Nordisk on February 2, AZ on February 2). Overall, Mr. Ricks highlighted both Trulicity and BI-partnered SGLT-2 inhibitor Jardiance (empagliflozin) as major drivers of growth for Lilly in the remainder of this decade. He further emphasized that Lilly’s growth expectations are driven by volume, rather than price, and that Lilly’s main strategy is product differentiation within diabetes. As he put it, “We want to keep moving the bar of what’s possible for patients with new insulins, with GLP-1, with Jardiance.” This strategy is certainly paying off – Mr. Ricks shared that every single product in Lilly’s diabetes portfolio is growing market share in every market. See our detailed discussion and commentary for much more from the breakout session on Jardiance, biosimilar insulin glargine Basaglar, and Lilly’s incretin R&D priorities.

2. Sanofi Highlights Challenges and Opportunities for Toujeo, Praluent, and Soliqua

Sanofi CEO Mr. Olivier Brandicourt acknowledged that Sanofi has faced headwinds lately, particularly with regards to flagship Lantus (insulin glargine), but emphasized the long-term upside to the company’s overall performance due to its significant portfolio expansion efforts. Mr. Brandicourt’s presentation largely focused on the progress of Sanofi’s six major new product launches, three of which are in diabetes and cardiovascular: Toujeo (U300 insulin glargine), Soliqua (insulin glargine/lixisenatide), and Praluent (alirocumab). The story for all three drugs, in our view, is very much “wait and see” given the stiff competition in each of these therapeutic areas. Management expressed optimism regarding Toujeo’s growing total prescription share (6.8% TRx in the US as of September 2016) and favorable formulary status (3 out of 4 covered lives in 2017), but it remains to be seen how the drug will fare against Novo Nordisk’s competitor next-generation basal insulin Tresiba (insulin degludec), which boasts a flexible dosing claim and potential hypoglycemia benefit from the SWITCH 1 and 2 trials (though the label does not yet include a hypoglycemia benefit claim), plus newly-launched Basaglar (biosimilar insulin glargine). On  the other hand, hopes are high for GLP-1 agonist/basal insulin combination Soliqua, the newest addition to Sanofi’s diabetes portfolio, though more time is needed to assess its performance. Approved in the US in November and now available in pharmacies, this highly-anticipated basal insulin/GLP-1 agonist co-formulation has enormous potential to improve diabetes care and make diabetes management easier and more effective for patients and providers alike. Novo Nordisk’s competitor Xultophy (insulin degludec/liraglutide) may have a slightly better clinical profile, given liraglutide’s demonstrated cardioprotective benefit and advantages of insulin degludec over U100 insulin glargine, but we expect Sanofi’s pricing model will be attractive for many (even if some may take it every 18 hours, which would lower the pricing advantage). Management reiterated during the breakout session Q&A that Soliqua will be priced at approximately $19.90/day assuming an average dose of 47 units – far less than Xultophy’s premium price of ~$31/day.

  • On the pipeline front, Sanofi confirmed that phase 3 trials in type 2 diabetes for Lexicon-partnered SGLT-1/2 dual inhibitor sotagliflozin initiated at the end of 2016. ClinicalTrials.gov currently lists two trials in the program: one of sotagliflozin as a monotherapy (expected to complete in March 2018) and one as an add-on to metformin (expected to complete in March 2019). Management echoed the strong enthusiasm of the company’s 3Q16 update, underscoring the differentiation potential of sotagliflozin due to its dual inhibition mechanism. The company further reiterated that its less renal-dependent mechanism could make it an attractive option for the many diabetes patients with impaired renal function – current SGLT-2 inhibitors are contraindicated in patients with impaired renal function due to decreased efficacy. Sanofi is responsible for the phase 3 development of sotagliflozin in type 2 diabetes while Lexicon has been responsible for its development in type 1 diabetes. The phase 3 program in type 1 diabetes is progressing significantly ahead of the type 2 diabetes program – Lexicon recently reported positive topline phase 3 results in type 1 diabetes and expressed optimism that it will be able to file for type 1 with the FDA ahead of completion of the type 2 program. We’re certainly looking forward to more updates on this candidate during Lexicon’s JPM presentation at 10:30 am on Wednesday.
  • Mr. Brandicourt expressed great optimism for its Regeneron-partnered PCSK9 inhibitor Praluent, pending positive results from the ODYSSEY CVOT. Many have held blockbuster expectations for Praluent (at one point it was positioned to be the new crown jewel of Sanofi’s combined Diabetes and Cardiovascular unit), but a currently unfolding legal situation has dealt a major blow: late last week, the US District Court of Delaware banned the sale of Praluent, following a previous lawsuit in which Regeneron was shown to have infringed on two of Amgen’s patents covering the PCSK9 inhibitor class. Sanofi/Regeneron continue to assert that Amgen’s claims are invalid and plan to appeal the decision – see our JPM 2017 Day #1 coverage for more.

3. Sernova Highlights Increasing Momentum for its Cell Pouch Beta Cell Encapsulation System

Sernova President and CEO Dr. Philip Toleikis reviewed the clinical progress of the company’s Cell Pouch System, a thin, implantable, beta cell encapsulation device currently in phase 1/2 for type 1 diabetes treatment. The system provides a vascularized environment for donor islet cells or stem cells to thrive, ultimately maturing into an “organ-like” hub to essentially replace the function of the pancreas. Notably, type 1 diabetes patients receiving Cell Pouch will still be required to take immunosuppressive medications, as the company has not yet developed microencapsulation technologies to protect the cells from the body’s autoimmune response. Additionally, Sernova does not yet have an unlimited cell source for its device and currently relies on donor islets. Despite Cell Pouch’s technical limitations, Sernova has experienced a string of positive news in recent months: this past July the company received $2.45 million from the JDRF to fund a phase 1/2 trial of the Cell Pouch System (slated to begin in 1Q17), and in November Sernova announced a collaboration with CTI Clinical Trial and Consulting Services, which will help them submit an Investigational New Drug Application (IND) to the FDA. These developments are certainly strong votes of confidence in the Cell Pouch System. Though the Cell Pouch System is Sernova’s most advanced project, Dr. Toleikis also highlighted the company’s plans of delving into the stem cell technology and cellular microencapsulation arenas. The creation of an unlimited stem cell-derived beta cell source and development of microencapsulation technologies, coupled with Cell Pouch’s vascularized environment, could certainly provide a long-term therapeutic option for patients with type 1 diabetes, or insulin-dependent type 2 diabetes. Our fingers are certainly crossed for progress in this increasingly promising realm of beta cell encapsulation (see our coverage of JDRF’s recent Bay Area Chapter Meeting for an overview of the other players in the beta cell encapsulation competitive landscape). A microencapsulated, vascularized system with stem cell-derived beta cells certainly seems like the holy grail at this point, but the proposition is very technically challenging and it appears that the most advanced players in the field – Sernova and ViaCyte – are focusing their efforts on less-ambitious implantable devices that promote vascularization but require immunosuppressants. Indeed, ViaCyte actually appears to be de-emphasizing its more advanced macroencapsulation technology that removed the need for immunosuppressants, due to a highly variable cell survival response in its ongoing phase 1/2 trial. While we would love to see a functional cure for type 1 diabetes in the near future, we hope that therapies such as Cell Pouch lay the groundwork for more transformative therapies in the future.

4. What’s on the Horizon in Type 1 Diabetes Therapy?

In an engaging panel discussion at the Biotech Showcase on upcoming type 1 diabetes therapies, Protomer’s founder Dr. Alborz Mahdavi emphasized the potential of glucose-responsive insulins while Semma Therapeutics’ Mr. Robert Millman spoke to the possibilities in beta cell replacement therapy. Many rapid-acting and long-acting insulins grace the market – the next leap, “the future of technology in the insulin space,” will be glucose-responsive insulins, Dr. Mahdavi asserted. Protomer is working to create a continuously circulating insulin that responds dynamically to glucose levels, and plans to establish built-in safety features that minimize hypoglycemia risk. Dr. Mahdavi is a star in the glucose-responsive insulin field – he previously won both JDRF’s Glucose-Responsive Insulin Grand Challenge Prize and received significant funding from a collaboration between JDRF and Sanofi to advance glucose-responsive insulin. Novo Nordisk and Merck are also working on glucose-responsive insulins, along with other industry players and a number of academic groups. It’s been a while since we’ve heard a definitively positive update on any of these drug candidates, and Merck has been silent on MK-2640 since its phase 1 trial wrapped-up in August 2016, so we were happy to note such confidence in these agents from Dr. Mahdavi, even though almost all candidates in this field remain preclinical. Notably, several potential methods of glucose-response are under investigation – see our coverage of the JDRF/HCT Glucose-Responsive Insulin Workshop and our insulin competitive landscape for more.

  • “Nature created the perfect cure for diabetes. It’s called the beta cell.” Mr. Robert Millman, CEO of Semma Therapeutics, discussed the company’s aim to “radically transform” our approach to type 1 diabetes through beta cell encapsulation. He described Semma as a preclinical company that will hopefully move a product into clinical testing within the next couple years. For background, Semma Therapeutics was founded by Harvard’s Dr. Doug Melton to commercialize his approach to creating stem cell-derived beta cells – from its inception, these cells held enormous potential for both encapsulation therapies and for drug research and discovery applications. Semma Therapeutics only recently explicitly stepped into the encapsulation field with its new partnership with Defymed, which boasts the preclinical MAILPAN “bioartificial pancreas” macroencapsulation system that features a semi-permeable membrane pouch to contain many insulin secreting cells. If successful, the combined technology could represent a functional cure for type 1 diabetes that does not require lifelong immnosuppressive therapy – that said, ViaCyte has evidently faced significant technical challenges with its macroencapsulation approach and we hope that Defymed and Semma Therapeutics will be able to either address or sidestep similar challenges. Despite its small number of years in existence, we’re excited to follow Semma Therapeutics’s progress in the years ahead.

5. Pharma Execs Expect No Major Changes on Drug Pricing

Drug pricing continued to be a hot topic at JPM, with management from several pharmaceutical companies maintaining that their drugs are priced appropriately in breakout sessions. GSK management emphasized the company’s commitment to continuing to price medicines appropriate to their benefit while remain accessible globally. Pfizer management was more aggressive in its defense of the company’s pricing practices, emphasizing that despite assumed list price increases in the mid- to high-single digit range, prescription drugs in the US and globally comprise a very small percentage of GDP and healthcare spending. Pfizer argued that it has been and will continue to be responsible with regards to drug pricing and that the company does not anticipate its pricing practices to drastically change in the future. These comments echoed day #1’s commentary from Gilead CEO Mr. John Mulligan, in which he emphasized the need to remind the public of the relationship between drug prices and the cost to innovate. He also emphasized that the enormously high costs of Gilead’s HCV drugs still represent a strong value proposition, a “bargain.” We appreciated his acknowledgement that the drug pricing issue is one that the pharmaceutical industry and pharmacy benefits managers (PBMs) must jointly own and work together to solve – the problem, in our view, is most people in the public don’t even know that PBMs exist and thus the “blame” for unaffordable medications is often shunted to industry. All in all, our sense is that while we will likely continue to hear plenty about drug pricing on investor calls, the imminent concerns of legislative regulation on pricing appear to have abated in the wake of the highly unexpected US election outcome. As GSK management put it, “I’m not going to sit here and predict what Trump may or not do, it’s not a useful exercise.” We imagine the conversation would be very different if we were a week and a half from a Clinton presidency, given her much more explicit plans to regulate drug pricing during the campaign season… That said, we do wish that more pharmaceutical companies would go beyond the typical narrative and acknowledge that, regardless of how we got here, too many patients struggle to afford life-saving medications. We hope others in the industry will take the lead of Novo Nordisk and Lilly and take steps to address this need.

Diabetes Technology Highlights

6. Dexcom Reports Record-High Q4 Sales, ~200,000 Patients Globally, Compelling Non-Adjunctive Marketing, Four Launches This Year

Dexcom’s quietly confident CEO Kevin Sayer gave his best JPM presentation ever, pre-announcing all-time high revenue of $168 million, a strong 28% year-over-year (YOY) gain on a very tough comparison to 4Q15 (55% growth when G5 mobile launched). Sales grew 13% sequentially from the previous record high in 3Q16. Impressively, Dexcom has now seen record-high sales in seven out of the past nine quarters, though for the third straight quarter, saw its lowest YOY quarterly growth since 3Q12 – likely a reflection of the large base of sales and the tough year-over-year comparisons. Total 2016 sales of ~$570 million rose ~42% over 2015, crossing half a billion for the first time and on the upper end of guidance for $550-$575 million. Mr. Sayer shared very strong confidence for 2017, with sales expected in the range of $710-$740 million, though at a lower growth rate of 25%-30% YOY – obviously revenue growth will naturally slow as sales rise, plus Medtronic and Abbott will/might launch competitive products in the US this year (Medtronic’s Guardian Sensor 3 in the 670G and Guardian Connect; Abbott’s FreeStyle Libre consumer version). We see upside to this guidance if things go well with the important new product launches this year: non-adjunctive labeling to launch in 1Q17 (very compelling marketing; see detailed section below), G5 Android, touchscreen receiver, and the new inserter and smaller transmitter (“G5x”; much easier to train, less expensive, and less intimidating to use). Dexcom also just expanded the sales force by ~20% (adding ~20 reps), which should also bring some tailwind this year. Dexcom’s worldwide installed base is now ~200,000 users, a ~40% rise from ~140,000-150,000 shared at JPM one year ago and reflecting an estimated 80,000-90,000 new patients added in 2016 – we assume that means ~20,000 patients stopped using Dexcom during the year, though this was not addressed today. Management expects to grow the worldwide patient base to ~270,000 by the end of the year (35% growth, outpacing revenue). As he has in the past couple of quarters, Mr. Sayer reminded attendees that Dexcom’s new patient adds are now ~60% from MDI and ~40% from pumps, flipping the company’s historical split – and a good sign it is hitting a broader population of type 1s. The base remains 75%-80% in the US (~150,000) and 20%-25% outside the US (~50,000), expected to continue in 2017.

  • Dexcom plans to launch four major product updates in 2017, including the non-adjunctive (insulin-dosing) label claim later in 1Q17, the Android version of G5, the new touchscreen receiver, and the one-touch inserter and lower profile transmitter (G5x) – the latter three are presumably still under FDA review, and management did not indicate when during the year they might launch. The marketing for the non-adjunctive labeling indication is pretty compelling – see an example here from Dexcom’s bigger investment in direct-to-consumer marketing (“1 jam-packed 10-hour day. No fingerpricks.** The Dexcom G5 Mobile Continuous Glucose Monitoring (CGM) System is the only device that lets you treat without pricking your finger.”).
  • Meanwhile, 2017 will also include a G6 FDA filing (paving the way for a launch next year) and an IDE filing and study for the first-gen Verily product (launch late next year). Mr. Sayer again showed the compelling G6 pre-pivotal data that headlined DTM, emphasizing the no calibration MARD of 9%. G6 will initially be 10-day wear and one calibration per day. In addition to showing the second-gen Verily prototype next to an M&M (first shown at DTM), we got a first-ever glimpse of the first-gen Verily product slated to launch next year – it is still meaningfully smaller on the body and similarly pear-shaped to the very tiny second-gen version, but with a slightly larger profile off the body. Both Verily products are expected to be 14 day wear, factory calibrated, fully disposable, and talk to a phone via Bluetooth (no receiver expected). The first-gen Verily product will exist alongside the traditional G6 sensor and transmitter, and if both products launch next year, we’ll be interested to see how Dexcom handles this (see quote below). Management suggested that the Verily product might be useful in type 1, but will be targeted at type 2 and new business models are under discussion with payers and pharma. The second-gen Verily sensor was quoted as a “2020-2021 timeline, depending on regulatory,” more specific than the previous “as early as 2020” timing.
  • The detailed write-up below includes more insight from this presentation and Q&A.

7. No Updates From Abbott on FreeStyle Libre US Timing

To our disappointment, we didn’t hear any updates on timing for the US approval and launch of the FreeStyle Libre consumer version. CFO Mr. Brian Yoor reminded the packed ballroom that the innovative device is available in Europe (200,000+ users), was submitted to FDA in 3Q16, and that Abbott “looks forward to bringing the product to the US market in the future.”. At this point, the “1Q17” launch timing estimated in the 2Q16 earnings call may not be realistic – the estimate was made before the FreeStyle Libre Pro was approved in September and before the consumer version was even submitted. It sounds like Abbott has had its hands full with its massive acquisition of St. Jude Medical, which just completed on January 4th. As noted in our 2016+2017 Reflections piece, we’re not sure whether Abbott is going for a non-adjunctive (insulin-dosing) claim in the submission, which would certainly require a longer review. Dexcom’s EVP Steve Pacelli and CEO Kevin Sayer highlighted Libre’s inaccuracy in hypoglycemia (see detailed write-up below or our Reflections piece), so it will be interesting to see how FDA interprets the factory calibrated sensor. It’s also possible that we’re reading too much into the dearth of information, and an approval could come in the next three months – but we would be surprised!

8. mySugr Signs Two German Payers to Manage Their Populations with a Bundle of Unlimited Test Strips, Connected Meter, and Coaching for $850 Dollars per Year

mySugr CEO Frank Westermann gave an outstanding update on the digital company’s progress and business model, sharing it has signed contracts with two German payers to provide usage-based unlimited strips, a connected BGM, and automated population management for $850 per year (~$71 per month). The specific meter was not specified, but we might assume it is Roche’s Accu-Chek Connect, a brilliant business move for both companies and a trend we see continuing to expand in BGM – as a reminder, One Drop, Livongo, and Dario Health all offer similar subscription approaches. However, mySugr can bring way more scale and software expertise, given its impressive 900,000+ registered users (1,000+ new per day)! The population management sounds very encouraging for driving better outcomes: mySugr’s algorithms permanently check the data stream from users, and if someone is out of a pre-defined therapy range for a pre-defined time, one of its coaches will proactively reach out. The individual therapy data is not shared with the payer, allowing mySugr to simply use it to provide the service – nice! The company is just beginning to raise a Series B round of funding (size not specified), and we have to imagine many are interested – Mr. Westermann estimated mySugr has the biggest digital diabetes customer base worldwide.

  • We also appreciated a deeper dive into mySugr’s three-pronged business model to target its estimate of ~27 million insulin-using patients in the EU and US: (i) a premium version of mySugr for $2.99/month (offering additional features like a bolus calculator in Europe; $100+ million market possible); (ii) an industry partnership model, giving it a “~5% revenue share” (presumably of device sales; $750+ million possible); and (iii) contracts with payers to offer unlimited strips (usage-based), automated population management, and a connected meter to for $850 per year ($20+ billion possible). Obviously those are potential market estimates, but they do show how much revenue is possible.
  • Notably, mySugr has seen a “10%-15% patient conversion to the partner BGM,” indicating a serious win for players like Roche that integrate their devices directly in the widely loved app (15,000+ reviews, 4.6 stars). Mr. Westermann noted that mySugr integrates with a growing list of glucose monitoring devices, including Abbott’s FreeStyle Libre, Dexcom’s G4/G5 (via Apple’s Healthkit), Roche’s Accu-Chek Connect BGM, and soon Medtronic’s CGMs and pumps following the November partnership announcement. He mentioned the Coaching product but did not share further updates following our coverage a couple months ago. We think the world of mySugr’s very smart 40-person team, of whom 14 have type 1 diabetes. The company will share retrospective outcomes data at ATTD through its partnership with Profil, which should help get payers’ attention.

9. Livongo’s Lofty Expectations for 2017

According to Livongo CEO Mr. Glen Tullman, over half of the of the Fortune 100 is using or in contracting (intend to move forward) with his company’s cellular-enabled BGM and remote coaching service (in just two years since launch), and his lofty objective is for 80% of the Fortune 500 to be by the end of 2017. He added that 79 companies will be added to the platform in the next 90 days! We were floored by these remarks – we know that Livongo is now serving “tens of thousands” of enrollees as of a November update, but providing service for at least 400 of the largest US businesses would be astounding. Mr. Tullman attributed the impressive uptake of the program to: (i) Consumers love for it (Net Promoter Score = 63); (ii) Documented clinical data showing it works; and (iii) Employees ultimately save money by investing in Livongo. As a reminder, Livongo raised an impressive $49.5 million Series C Round early last year from investors including Humana, Blue Cross/Blue Shield of Massachusetts, and Merck, adding to existing investors Kleiner Perkins and General Catalyst.

10. Omada Hires Former Sanofi CMO, Demonstrates ROI Before 2 years in its DPP Program

Omada Health’s Mr. Adam Brickman provided a number of updates: (i) Former Sanofi Global CMO Dr. Paul Chew has been brought on board t0 serve as Omada’s CMO; (ii) New modeled data shows that the Omada DPP delivers a financial return on investment before year two; and (iii) The company is moving toward “precision prevention for chronic disease.” The hiring of Dr. Chew is a very big deal – at Sanofi, he worked on the clinical programs of both metformin and Lantus. He originally intended to retire after his 15-year stint with Sanofi, but the Omada team was lucky enough to convince him otherwise. His hiring reflects Omada’s commitment to publishing, and he will spearhead an already-robust clinical pipeline, which includes three-year data of the DPP coming out this year (see the two-year results here), a Medicare cohort study, a Medicaid/safety-net controlled trial, and a randomized-controlled trial. The literature has shown Omada’s DPP to be clinically effective, but Mr. Brickman showed a graph demonstrating that, in a 480-member cohort, the projected return on investment (direct medical savings – program costs) rises into the black between years one and two of the program, and hits $840,000 by year five. When applied to larger population, these savings become meaningful, and more importantly mean that people are doing better. Omada has enrolled over 85,000 members to date and has over one billion data points of interaction with enrollees. Mr. Brickman said that “We are getting better at predicting behavior. In week three or four, we can tell the coach with confidence how ‘Jim Smith’ will do, exactly what kind of guidance he’ll need.” This extensive data collection, combined with constant A/B testing and launch of new code every Sunday (!), is really helping Omada to tailor and increase the efficacy of its prevention program.

  • Mr. Brickman said that Omada is in conversations with CMS regarding virtual DPP reimbursement. In November, CMS released its finalized 2017 Physician Fee Schedule, including its final rule on Medicare coverage of DPP. Notably, a ruling on virtual DPPs (like Omada) was deferred until late 2017. Omada, however, believes that it has the data to support coverage.

11. Bigfoot CEO Jeffrey Brewer Reiterates Mid-2017 Pivotal Trial Start; Riffs on Opportunities for AID, Including 33,700 Dollars Per Hypoglycemia Hospitalization

Over at the Biotech Showcase, Bigfoot Biomedical CEO Mr. Jeffery Brewer confirmed the plan to begin a pivotal trial for the smartloop AID service in mid-2017. He also discussed the promise of automating insulin delivery alongside reimbursement challenges for type 1 diabetes therapies. While great strides have been made recently in getting automated insulin delivery (AID) devices close to market, he underscored that we’re just scratching the surface – the real opportunity is not only in automating insulin dosage, but in harnessing data to inform insulin titration recommendations, in monitoring AID systems to find areas for improvement, and in using artificial intelligence to engage patients in a dialogue about their insulin regimen. We agree – could CGM + smart insulin titration software offer 80% of the value of a pump+CGM system, but with much less cost? Turning to reimbursement, Mr. Brewer acknowledged a major obstacle for type 1 diabetes therapies: “The disease presents a challenge in demonstrating short-term payoffs. Better glucose control is going to benefit patients in the long-term, which is beyond what most private payers can consider when they have an average of two years before someone flips to a new insurance plan.” However, an important argument to encourage reimbursement lies in the ability of AID services to minimize insulin dosing errors and prevent hospitalizations. According to Mr. Brewer, a hypoglycemia-related hospitalization costs a mean of $33,700, a hyperglycemia-related hospitalization costs a mean $25,980, and these diabetes-related hospitalizations are occurring once every two patient-years. The source for these figures was not specified, but the hypoglycemia number is approximately double the typical $17,654 figure used for severe hypoglycemia hospitalizations. If true, that is startling. We see high potential in Bigfoot’s service model for one monthly price, offering payers a lower upfront cost and more of an at-risk relationship for Bigfoot. An open question is how quickly Bigfoot can build this model - it makes so much sense for payers, though there will be logistical complexities to offering a durable pump controller, disposable pumps, infusion sets, CGM sensors, and transmitters all in one monthly package. We’ll also be interested to see how well the MiniMed 670G is covered at launch, what Medtronic’s 1,000-patient outcomes study will show, and whether other companies can leverage its data.

12. Panasonic Healthcare Holdings Highlights 20% Market Share for Ascensia BGM Globally (#3), 10 Million Global Users, Shows Future R&D Plans for CGM on Pipeline Slide

Privately-held Panasonic Healthcare Holdings’ Dr. Hito Kotani shared some details on Ascensia Diabetes Care (formerly Bayer), including an estimated 20% BGM market share globally (#3), 10 million global users, and potential plans to develop a CGM in the future. The CGM was almost hidden on the pipeline slide showing a generic, illustrated picture of a round transmitter with goals for better accuracy, affordability, and comfort (picture below). As a reminder, Bayer’s CGM was actually sold to AgaMatrix a few years ago (we learned this from Dr. Ken Ward at the July NIH AP Workshop), so we assume Ascensia will have to develop a new system based on its very accurate line of BGM strips. Nothing specific was shared on timing, but we’d have to imagine this is several years away. On the other hand, Panasonic Healthcare Holdings is 80% owned by KKR, a global investment firm with the resources to really drive this R&D if desired. An earlier slide showed Panasonic Healthcare Holdings’ business before and after the Ascensia acquisition, suggesting the deal added ~$701 million in revenue on top of Panasonic Healthcare Holdings’ existing business of ~$1 billion. (For context, Bayer’s last report in 3Q15 suggested the Diabetes Care business was doing ~$250 million in sales per quarter, with strong profitability.) This does suggest that Ascensia is more than half of Panasonic Healthcare Holdings’ business, so there should be strong commitment. Dr. Kotani highlighted that 99% of the Ascensia + In-Vitro Diagnostics business (point-of-care devices for A1c, lipids) is recurring revenue – the highest in a portfolio that also includes Health IT and Biomedical products – and we assume Ascensia’s profitability and cash-generation remains positive even as the BGM industry has seen a lot of pressure. There wasn’t other discussion of Ascensia’s pipeline, but we’re glad to see the company continuing to bring new products to the market – most recently with the Bluetooth-enabled Contour Next One meters. The company’s accurate strip line is a real asset and a huge win for partner Medtronic, whose CGM will benefit from more accurate calibration with Ascensia’s meter. 

13. WellDoc’s BlueStar to Go Rx-Less

WellDoc CEO Mr. Kevin McRaith announced that BlueStar, WellDoc’s type 2 diabetes management software, will soon not need a prescription. He added that this development “opens up a lot of operational flexibility with payers and employers.” We’re not sure when the transition will be official, but we imagine that it will come side-by-side with more DTC marketing. WellDoc just officially partnered with AADE last week, a move that we interpreted as a way to raise awareness of BlueStar among educators and integrate more educational content into the software. There were no updates on the planned 1Q17 launch of the recently cleared integration with the LifeScan Verio Flex BGM.

Big Picture Highlights

14. Uncertainty Surrounds the Future of Healthcare Under the Trump Administration

Down the street from JPM, several sessions at the Biotech Showcase Conference were dedicated to a topic of looming uncertainty: the future of healthcare under the Trump administration. Inauguration day is only 10 days away, and yet even esteemed experts in the healthcare policy field (including Biotech Showcase’s impressive array of congressmen, policymakers, and legal strategists) have little clarity regarding the future of the ACA, Medicare/Medicaid policy, drug pricing, and the drug approval process after the transition of power. Although Trump’s precise action plan on healthcare remains a mystery, we did glean a great deal of insight into the potential areas of the healthcare system in which his administration could exert significant change. In a packed lunch symposium, the FDA’s newly-retired drug regulatory policy chief, the esteemed Ms. Jane Axelrad, explained that new presidents typically appoint new FDA commissioners, as well as about five other high-ranking appointments in the agency. We are nervous about the consequences of this for the current FDA commissioner Dr. Robert Califf – we would sorely miss his leadership at the FDA, and his impressive understanding of chronic diseases and emphasis on patient-centered outcomes.

  • Regarding the FDA, panelists suggested that the new administration may apply particular pressure to increase drug approvals in 2017 and beyond, following the abnormally low 22 new molecular entity approvals in 2016. Notably, of those 22 approvals, only one was for a diabetes medication (Sanofi’s GLP-1 agonist Adlyxin [lixisenatide]), and none were in cardiovascular disease or obesity. The Lewis Center for Healthcare Innovation and Technology’s Dr. Joseph Gulfo suggested that the low number of diabetes approvals is in part due to the fact that the bar for new diabetes drug approvals was raised to include a costly CVOT following the rosiglitazone controversy and that “unnecessary bar” was not removed following further analyses that deemed rosiglitazone safe. He further suggested that biotech companies and investors are more likely to pursue breakthrough designations due to their faster approval timeline and lower competitive pressure at market, which further exacerbates the limited development of new metabolic and cardiovascular drugs. We found Dr. Gulfo points quite salient – particularly from the small biotech perspective – and wonder how we can better incentivize new players in the diabetes field.
  • Perhaps the most optimistic commentary on this subject came from Dr. Julie Gerberding, former director of the CDC and now an Executive VP at Merck. Despite serious concerns over women’s health and the future of Medicare and Medicaid coverage, Dr. Gerberding noted that Trump’s commitment to infrastructure improvement could be a bright spot in an otherwise bleak-looking future for healthcare. Infrastructure improvement provides an opportunity to create an environment in health – building roads, but also bike lanes and sidewalks beside them. This kind of investment, forecasted Dr. Gerberding, could “nudge people into better health.” Indeed, this notion of promoting “health in all policies” was raised during discussions of President Obama’s stimulus package, but never gained traction. She urged congress to leverage their majority for these wellness-promoting infrastructural improvements. 

Detailed Discussion and Commentary

Diabetes Therapy

Lilly

David Ricks (CEO, Lilly, Indianapolis, IN)

In his very first conference presentation and address to the investment community since stepping into the CEO role, Lilly’s Mr. David Ricks demonstrated an impressive grasp Lilly’s diabetes priorities and provided a number of tantalizing details on GLP-1 agonist Trulicity’s (dulaglutide) performance. Mr. Ricks highlighted Trulicity’s strong uptake in the diabetes market, despite its status as the fifth-to-market GLP-1 agonist facing the highly “entrenched” Victoza (Novo Nordisk’s liraglutide). Indeed, Mr. Ricks shared that, two years after launch in late 2014, Trulicity surpassed Victoza in terms of total prescriptions (TRx) – wow! Based on Lilly’s presentation slides, both Victoza and Trulicity have enjoyed strong upward trajectories in TRx in the US in the last two years, though Trulicity’s is noticeably steeper and appears to be accelerating while Victoza’s appears to be plateauing somewhat. Mr. Ricks emphasized that Trulicity has also served as an instrumental catalyst for overall GLP-1 agonist growth, with class growth more than doubling from 13% year-over-year (YOY) at Trulicity launch to 29% YOY as of this week. That said, 29% YOY growth is a slight dip from the high of ~35% in the first half of 2016 – we’ll have to see if this is a short-term dip or a longer trend as new classes such as SGLT-2 inhibitors gain popularity. We’re very curious to learn more details about GLP-1 agonist market dynamics when the major GLP-1 agonist companies report their 4Q16 earnings (Lilly on January 31, Novo Nordisk on February 2, AZ on February 2). Overall, Mr. Ricks highlighted both Trulicity and BI-partnered SGLT-2 inhibitor Jardiance (empagliflozin) as major drivers of growth for Lilly in the remainder of this decade. He further emphasized that Lilly’s growth expectations are driven by volume, rather than price, and that Lilly’s main strategy is product differentiation within diabetes. As he put it, “We want to keep moving the bar of what’s possible for patients with new insulins, with GLP-1, with Jardiance.” This strategy is certainly paying off – Mr. Ricks shared that every single product in Lilly’s diabetes portfolio is growing market share in every market.

  • “With SGLT-2 inhibitors, and Jardiance specifically, our growth ambition probably exceeds the size of the DPP-4 inhibitor class.” While barely mentioned in prepared remarks, Mr. Ricks made it clear in the breakout session that expanding the indicated population for Jardiance will be core priority for Lilly’s growth. For context, revenue for the DPP-4 inhibitor class totaled $4.7 billion in the first half of 2016 and the largest product in the class, Merck’s Januvia (sitagliptin), regularly posts ~$1.5 billion in sales each quarter. Mr. Ricks shared that Lilly and BI place enormous importance on the launch of the expanded indication for Jardiance and that commercial promotion of the new label will begin next week (!). The launch of the new label benefits from the fact that Jardiance is already on the market and has relatively good access, according to Mr. Ricks, and BI will further contribute its cardiology expertise to Lilly’s endocrinology expertise in the launch. On the other hand, he pointed out that the challenge will be to educate primary care physicians to consider and treat indications beyond glucose-lowering in their patients with diabetes and that this will take time. Responding to a question from our very own Ms. Kelly Close, Mr. Ricks also highlighted the significant potential opportunity for Jardiance as a heart failure medication in patients without diabetes – he shared that BI is taking the lead on the two planned heart failure CVOTs for Jardiance.
  • We were somewhat surprised that Mr. Ricks did not call out Basaglar (biosimilar insulin glargine) as a growth driver in prepared remarks – both Basaglar and Humalog (insulin lispro) were highlighted as such in Lilly’s 2017 Financial Guidance in mid-December. Rather, Mr. Ricks suggested that insulins and animal health together would form the base of Lilly’s overall portfolio, providing steady moderate growth across varied geographies in the next few years. In the breakout session, he clarified that this expectation does include Basaglar growth and emphasized that Lilly’s development of Basaglar was driven by a desire for a complete insulin portfolio that includes a basal insulin, rather than a goal of becoming a “biosimilar company.” We did not hear any commentary on the progress of Basaglar’s long-awaited US launch – the product has been available in US pharmacies since December 15 and we’re eager for details on its early uptake given that is holds exclusive positioning on several formularies and will be included in Lilly’s new discount insulin program.
  • GLP-1 agonists and other incretins were highlighted as key diabetes development priorities for Lilly. Despite the launch of two GLP-1 agonist/basal insulin combinations, Lilly remained confident in Trulicity’s prospects given its once-weekly dosing as opposed to the once-daily dosing of the combinations. In the longer term, Lilly management suggested that a once-weekly GLP-1 agonist/basal insulin combination would be an R&D goal, as well as “upgraded” incretins with dual or triple agonism to enhance weight loss. Lilly’s early-stage pipeline is certainly well set up to achieve these goals – the company’s clinical development portfolio includes a phase 1 GIP/GLP-1 dual agonist, a preclinical once-weekly GLP-1/glucagon dual agonist, a preclinical once-weekly insulin, and a preclinical once-weekly glucagon.
  • We thought Mr. Ricks did very well in his first high-profile public turn as Lilly CEO. We appreciated the specific mentions of diabetes in the prepared remarks and his detailed responses to diabetes-related questions in the breakout session (though, we did wonder at the absence of president of Lilly Diabetes Mr. Enrique Conterno – he’s traditionally been a valuable voice in Lilly’s JPM presentations and we missed his insightful commentary – that said, we recognize that he likely has his hands full with his added responsibilities as president of Lilly USA). We also greatly appreciated Mr. Ricks clear commitment to investing in the incredible team at Lilly and to Lilly’s core mission – he shared that he even has a print of Lilly’s original code from 1899 displayed in his office! Retired CEO Mr. John Lechleiter shepherded Lilly through the development and launch of an extraordinary number of diabetes products and we’re eager to see what Mr. Ricks’ tenure brings.

Diabetes Technology

Dexcom

Kevin Sayer (CEO, Dexcom, San Diego, CA)

Dexcom’s quietly confident CEO Kevin Sayer gave his best JPM presentation ever, pre-announcing all-time high revenue of $168 million, representing a strong 28% year-over-year (YOY) gain on a very tough comparison to 4Q15 (55% growth when G5 mobile launched), plus a solid 13% sequential gain from the previous record high in 3Q16. Impressively, Dexcom has now seen record-high sales in seven out of the past nine quarters, though for the third straight quarter, saw its lowest YOY quarterly growth since 3Q12 – likely a reflection of the large base of sales and the tough year-over-year comparisons. Total 2016 sales of ~$570 million rose ~42% over 2015, crossing half a billion for the first time and on the upper end of guidance for $550-$575 million. Mr. Sayer shared very strong confidence for 2017, with sales expected in the range of $710-$740 million, though at a lower growth rate of 25%-30% YOY – obviously revenue growth will naturally slow as sales rise, plus Medtronic and Abbott will/might launch competitive products in the US this year (Medtronic’s Guardian Sensor 3 in the 670G and Guardian Connect; Abbott’s FreeStyle Libre consumer version). We see upside to this guidance if things go well with the important new product launches this year: non-adjunctive labeling to launch in 1Q17 (very compelling marketing; see below), G5 Android, touchscreen receiver, and the new inserter and smaller transmitter (“G5x”; much easier to train, less expensive, and less intimidating to use). Dexcom also just expanded the sales force by ~20% (adding ~20 reps), which should also bring some tailwind this year.

  • Dexcom’s worldwide installed base is now ~200,000 users, a ~40% rise from ~140,000-150,000 shared at JPM one year ago and reflecting an estimated 80,000-90,000 new patients added in 2016 – we assume that means ~20,000 patients stopped using Dexcom during the year, though this was not addressed today. Dexcom estimated it grew US CGM penetration in type 1 by four percentage points in 2016, an impressive achievement. Management expects to grow the worldwide patient base to ~270,000 by the end of the year (35% growth, outpacing revenue). As he has in the past couple of quarters, Mr. Sayer reminded attendees that Dexcom’s new patient adds are now ~60% from MDI and ~40% from pumps, flipping the company’s historical split – and a good sign it is hitting a broader population of type 1s. The base remains 75%-80% in the US (~150,000) and 20%-25% outside the US (~50,000), expected to continue in 2017.

  • Dexcom plans to launch four major product updates in 2017, including the non-adjunctive (insulin-dosing) label claim later in 1Q17, the Android version of G5, the new touchscreen receiver, and the one-touch inserter and lower profile transmitter (G5x) – the latter three are presumably still under FDA review, and management did not indicate when during the year they might launch. The marketing for the non-adjunctive labeling indication is pretty compelling – see an example here from Dexcom’s bigger investment in direct-to-consumer marketing (“1 jam-packed 10-hour day. No fingerpricks.** The Dexcom G5 Mobile Continuous Glucose Monitoring (CGM) System is the only device that lets you treat without pricking your finger.”).
  • Meanwhile, 2017 will also include a G6 FDA filing (paving the way for a launch next year) and an IDE filing and study for the first-gen Verily product (launch late next year). Mr. Sayer again showed the compelling G6 pre-pivotal data that headlined DTM, emphasizing the no calibration MARD of 9%. G6 will initially be 10-day wear and one calibration per day. In addition to showing the second-gen Verily prototype next to an M&M (first shown at DTM), we got a first-ever glimpse of the first-gen Verily product slated to launch next year – it is still meaningfully smaller on the body and similarly pear-shaped to the very tiny second-gen version, but with a slightly larger profile off the body. Both Verily products are expected to be 14 day wear, factory calibrated, fully disposable, and talk to a phone via Bluetooth (no receiver expected). The first-gen Verily product will exist alongside the traditional G6 sensor and transmitter, and if both products launch next year, we’ll be interested to see how Dexcom handles this (see quote below). Management suggested that the Verily product might be useful in type 1, but will be targeted at type 2 and new business models are under discussion with payers and pharma. The second-gen Verily sensor was quoted as a “2020-2021 timeline, depending on regulatory,” more specific (and perhaps slightly later) than the previous “as early as 2020” timing.
    • From a regulatory timing perspective, we have resources lined up to move both G6 and the first-gen Verily product in parallel. The commercial launch of the G6 product will remain our core, type 1 focused product using the core sales force and infrastructure. What will be the target focus for the first Verily product? We’ve always believed it will be useful for type 1s, but we look at this as an opportunity to enter into type 2. We are exploring things with insulin companies and payers and different go to market strategies with the Verily product, as opposed to a more traditional launch with G6.” – Steve Pacelli
  • Dexcom is already rolling out marketing for the non-adjunctive (insulin-dosing) claim. It is very well done and definitely maximizes the no confirmatory fingerstick part of the label, even though two are needed per day for calibration (example here; see below). This is taking a page out of Abbott’s FreeStyle Libre marketing book in Europe and could help drive CGM adoption in reluctant prescribers and patients. Management also alluded to a positive impact in payer discussions: “This will differentiate us with payers. We will take it to managed care and say we’re the only system labeled to replace fingersticks.”

  • Dexcom expects more data from the DIaMonD study to read out early this year and hopefully a publication in the first half of 2017. As a reminder, this study also includes data from people with type 2 diabetes and an insulin pump crossover phase.
  • Medicare coverage is still expected in 2018 and discussions are ongoing now that the non-adjunctive claim has been approved. There is still a lot of back and forth happening to educate Medicare, which is unfortunate to hear – this has been a long time in the making! Management was confident this will happen, and it’s just a matter of jumping through the administrative hoops.
  • Mr. Sayer talked more than ever about reducing cost, driving new business models with payers, and using CGM in non-intensive diabetes – all will be key for expanding this market and driving Dexcom’s mid/long-term growth, particularly as CGM competition heats for intensively managed patients. Showing cost-effectiveness and meaningful clinical efficacy with payers – particularly for type 2 – will be the most critical piece.
    • “Payers look at cost per member per month, per day, per year. That’s how they look at it. What is most expensive in our system is new electronics. Through the Verily relationship, we have very aggressive cost reduction targets, even though it’s disposable, to get the cost per day down. It is designed to last for 14 days, which will help. We can get them down, and I won’ give you a percentage, but they are extremely aggressive. We have not automated all of our manufacturing, though we have automated some and move more in our new plant in Arizona. We will move more things in house and send other things out. We think we can take a significant amount of cost out of our system. It’s hard to take a deep breath when you’re growing as fast as we are. You don’t change your processes. We can look at things differently. We have initiatives on all many fronts to reduce costs. The new applicator is less expensive, and the generation after that will take significant costs out of the system. We’ve identified each piece, where we can we take cost down. We just can’t ever take quality away from the sensor performance.”
    • “CGM will be a key element of cost reduction in diabetes in the healthcare system. When does a patient move to insulin and should it be long acting vs. fast-acting. What is the actual cost and therapeutic benefit of a sophisticated insulin delivery system? CGM? Can we predict and identify those at risk for expensive hospitalizations and keep those patients from re-admission when they leave and shorten their stay? Is the patient actually taking the medication that the system is providing them? All of our future systems will produce the data necessary to answer these and many other questions. Every thing we are doing is aimed at reducing costs on the system and ultimately making CGM available to everyone.” – Mr. Sayer
    • “CGM is a technology that delivers benefits across the board to every constituent: patients, clinicians, and payers. For patients, it will help navigate the day to day decisions and feedback loop for a precise understanding of glucose response. For clinicians, it will navigate who needs more attention and develop hyperglycemia-personalized treatment plans. For payers, CGM will help them deeply understand the efficacy of treatment to better target care to improve outcomes while reducing costs. There is no technology better designed for at-risk models than Dexcom. We’re not afraid to enter these agreements. We’re not going to be able to sell systems like we do now, as we get into populations beyond type 1 diabetes.”
  • Sales tripled YOY in December in Germany following the positive CGM reimbursement win last summer. The German business will be a “major initiative” in 2017. Management noted that the biggest limiting factor in Germany is training, as payers require documentation that a patient was trained on the system. Dexcom is working with different training models, hiring nurse educators on a contract basis, and online tools.
  • Gross margin is expected to range from 67% to 70% for 2017, and operating expenses are anticipated to increase by ~20%-25% over 2016 (growing slower than revenue).
  • Management was emphatic that “Libre is not a CGM” and the accuracy may not be good enough to dose insulin. We cannot wait to see what FDA does on this front. As noted in our 2016+2017 Reflections piece, Libre is less accurate overall than G5, particularly in hypoglycemia – per the Libre Pro US label (see page 45 here), only 53%-58% of Libre Pro points are within 15%/15 mg/dl of YSI at <80 mg/dl vs. 89%-91% for Dexcom’s G5/G4 with Software 505 (see page 240 here):
  • Dexcom has begun early phase analytic projects and started to look at patient patterns, outcomes, and population analytics. For instance: “Our California patients have the lowest average glucose readings in our database. I won’t tell you who is the worst.” With this growing investment in Big Data, Dexcom will be able to show payers which patients are most compliant, how well patients do on G5, etc. Mr. Sayer also reminded attendees of the upcoming open APIs, noting that several potential partners have stepped forward already. 

-- by Adam Brown, Abigail Dove, Helen Gao, Brian Levine, Payal Marathe, Kelly Close