Abbott 1Q17 – ~300,000 Libre users in >30 countries; Expanding reimbursement; CEO Miles White “impatient” waiting for FDA’s Libre approval; Global sales grow 23%, int’l sales up 29% on Libre strength – April 19, 2017

Early this morning, Abbott CEO Mr. Miles White led the company’s 1Q17 financial update, sharing very positive news for the diabetes business. Below, we bring you our top financial and pipeline highlights from the call followed by selected Q&A. 

Pipeline Highlights

1. There are now “about 300,000” patients using FreeStyle Libre in over 30 countries, an increase from the 250,000+ EU-only patients using the system reported in 4Q16, and more than twice the number indicated just three quarters ago. Though those numbers are not directly comparable – EU vs. global – it’s clear the user base is really increasing. If each customer is using two sensors per month (at $60/sensor), then estimated Libre revenue of just over ~$100 million is now half of total international sales. And there are no signs of slowing; during Q&A, CEO Mr. Miles White said that Libre is achieving “unprecedented” reimbursement across European countries (even expanding in Germany, where it was excluded from the CGM decision last summer), and still growing very well in markets where patients pay out of pocket.

2. No update was shared on the US launch of FreeStyle Libre consumer (real-time) version, which is still presumably expected in the second half of this year – that’s what we had heard on the 4Q16 call, though of course the FDA is very hard to predict. We know the FDA is incredibly under-resourced, so we would also not be surprised if this takes longer. When asked about US timing for the consumer product during Q&A, Mr. White told the whole story with five words: “Submitted. Waiting. Excited. Anticipating. Impatient.” As a reminder, FreeStyle Libre consumer was submitted to FDA for both an adjunctive claim and a non-adjunctive (replacement) claim in 3Q16. We’re hearing positive stateside commentary on Libre Pro (see ENDO 2017), and the product was only launched in the US last fall. Could the Pro version pave the way for faster HCP uptake of Libre consumer?

3. There are a number of FreeStyle Libre studies on ClinicalTrials.gov, including a 1,000-patient observational quality of life study in Belgium (investigator-initiated), a 100-patient quality of life study in type 2s (investigator-initiated), a completed Abbott-sponsored trial in 83 pregnant women, and a 76-patient Abbott-sponsored pediatric glycemic control (time-in-range) study.

Financial Highlights

4. Abbott’s Global Diabetes Care business had a phenomenal quarter overall on Libre momentum, with revenue of $292 million growing 20% as reported and 23% operationally year-over-year (YOY) on an easy comparison to 1Q16. Since Libre took off in Europe, this is the fourth straight quarter of positive YOY growth – this stretch was preceded by 10 quarterly declines. Management forecasted more double digit sales growth in 2Q17.

5. International Diabetes Care revenue totaled $217 million in 1Q17, growing a whopping 29% operationally (25% as reported). As expected, FreeStyle Libre drove the quarter’s success, touted by Mr. White for the three C’s: cost, comfort, and convenience. The reported international revenue marks the second highest annual total in five years (next to $223 million last quarter), a clear reminder of Libre’s growing user base and presumably strong retention.

6. US Diabetes Care sales climbed 9% YOY for 1Q17, totaling $75 million. This is the first positive growth in seven quarters, but came on a very easy comparison to 1Q16 (when sales fell 32% YOY). We’re not sure how much of this quarter’s revenue can be attributed to Libre Pro sales, but we suspect it’s quite small. Revenue upside for Pro is presumably smaller than the consumer product, only because this device is provider-driven and individual patients would likely wear a Pro sensor a handful of times per year at most. Still, we see this as a product with big potential for use in a broad population of type 2s and in clinical trials.

Pooled J&J and Abbott Financial Highlights

7. J&J and Abbott pooled global revenue reached ~$691 million, growing 3% YOY relative to 1Q16 on an easy comparison (-10% one year ago). Pooled sales of ~$229 million in the US for 1Q17 fell 8%, whereas pooled international sales of ~$462 million grew 9% YOY on strength of international sales of the Abbott Free Style Libre. Of the two companies, Abbott is clearly in a stronger spot from a sales and growth perspective.

Pipeline Highlights

1. ~300,000 Libre Users in >30 Countries, Up From 250,000 in EU LAST QUARTER

There are now “about 300,000” patients using FreeStyle Libre in over 30 countries (EU + Australia, Israel, Brazil, and Argentina, to our knowledge), an increase from the 250,000+ EU patients using the system reported in 4Q16, and more than twice the number indicated just three quarters ago. Though those numbers are not directly comparable – EU vs. global – it’s clear the user base is really increasing and that enthusiasm is high for Libre in many parts of the world. If each customer is using two sensors per month (at $60/sensor), then Libre revenue of roughly $100 million is now half of total international sales. Of course, that may not be the right actual price everywhere, so this is an estimate and speculation only. There are no signs of Libre slowing; during Q&A, CEO Mr. Miles White said that Libre is achieving “unprecedented” reimbursement across European countries (even expanding in Germany, where it was excluded from the CGM decision last summer), and still growing very well in markets where patients pay out of pocket. “I think we are pretty excited about this product and the pace at which it’s growing and expanding – nothing but good.” We’re also not sure how the Libre user base is counted: “active users” vs. “anyone who has ever ordered a FreeStyle Libre sensor.” The latter would obviously inflate the user base. We understand the “contracting” is going well in the EU, particularly Germany, and this is another sign that the standard of care is changing for glucose monitoring – there is still tremendous upside since far less than 1% of people with diabetes globally are using CGM.

• We’re not sure how to interpret the switch from presenting just the EU user base to presenting the global user base – is EU growth slowing? It’s hard to say for sure, but this wouldn’t be surprising; Libre has now been out in Europe for just over two years in Europe – there is tremendous upside, however. Here are the Libre user base estimates management has given over the past four quarters. We note that it is very unusual for us to receive such specific numbers associated with a product; typically large companies like Abbott don’t give such updates and we are glad management is continuing to offer them.

Table 1. FreeStyle Libre User Base Growth and Roughly Estimated Revenue Based on Utilization

• Mr. White pointed out that the FreeStyle Libre user base compares favorably to “a like competitor.” Indeed, as of the JPM 2017 update, Dexcom had ~200,000 global users, or roughly 67% of Abbott’s current base. Of course, it’s impossible to know what assumptions each company uses to count a “user” – again, is it someone actively using and reordering, anyone who has ever placed an order, or something in the middle? For context, Dexcom added an estimated 80,000-90,000 customers in 2016 and projected in late February that its base will climb to 270,000 by then end of 2017. We wonder if that estimate will be amended upwards in light of Medicare’s landmark decision to reimburse therapeutic CGM (just Dexcom’s G5 at the moment, though we’ve heard some patients have had early trouble getting CMS to approve the G5). potentially opening up CGM coverage to many more beneficiaries. Meanwhile, Abbott has had strong base growth (based on the public comments) and should see a sizable uptick in the user base once Libre gets a ‘yes’ from the FDA.
  
  • The type 1/type 2 split of Libre users has never been divulged, and we continue to be very interested in how it breaks down. We assume type 1s are overrepresented in the Libre user base – relative to the general diabetes population – but otherwise we’re not sure. Are type 1s 90% of Libre users? 50%? 30%?  Ultimately, Abbott’s goal with this product is to reach a broad number of insulin users, and we’ll be interested to see if the marketing, reimbursement, and product form factor evolves over time to make this happen.
• The news that reimbursement within Germany and other countries is expanding is excellent and is not too surprising. FreeStyle Libre’s lack of alarms precluded it from coverage under G-BA’s ruling last Summer, but Abbott has a lot going for it in the way of reimbursement: (i) strong hypoglycemia data from REPLACE and IMPACT; (ii) ~300,000 users worldwide; (iii) real-world data presented at ATTD suggesting that increased scanning translates to lower A1c and less time in hypoglycemia; and (iv) a cost-effective and desirable form factor relative to current CGM – although of course, all the manufacturers are continuing to work on form factor and we expect all to improve, particularly Dexcom given its partnership with Verily. As far as we know, we assume Libre’s German reimbursement is regional, but it is possible that G-BA has expanded the definition of reimbursable glucose monitors. Even in markets where patients are paying out of pocked, Mr. White noted that there is still good growth – quite remarkable, considering that patients typically do not want to pay for things.
• At ATTD 2017 in February, Dr. Ramzi Ajjan presented compelling real-world data from >55,000 FreeStyle Libre users suggesting that, when they scanned at higher frequencies, their A1cs were lower and they spent less time in hypoglycemia. Notably, these findings were highlighted in the top bullets of the quarter’s Abbott-wide press release – wow! As background, the de-identified data was collected over a period of 18 months (October 2014 – May 2016), and compiled to include 64 million scans. As scanning increased, (i) estimated A1c dropped from 8.0% to 6.7%; (ii) time spent with glucose <70, 55 and 45 mg/dl decreased by 15%, 40%, and 49% respectively; (iii) time >180 mg/dl fell from 10.4 to 5.8 hours per day; and (iv) time in range increased from 12.0 to 16.8 hours per day. In addition, users scanned 16.3 times per day on average, with some scanning as frequently as 50 times per day! We were not surprised by these findings in one sense– Libre is a great technology that makes obtaining glucose data less painful, and more frequent glucose data and trends gives actionable information to drive behavior and therapeutic change. What is compelling here is real-world data from a 55,000-patient-strong cohort, especially because it confirms data from Libre’s RCTs. We hope this stands as further evidence (especially for payers) that patients derive significant real-world benefits from more continuous glucose monitoring, are willing to scan at high frequencies outside of a clinical trial setting, and can make appropriate therapeutic and behavioral adjustments.

2. No update on Libre Consumer Progress at FDA; 2H17 launch Previously Expected as of 4Q16

No update was shared on the US launch of FreeStyle Libre (real-time) consumer version, which is still presumably expected in the second half of this year – that’s what we had heard on the 4Q16 call, though of course FDA is very hard to predict. We know the FDA is incredibly under-resourced, so we would also not be surprised if this takes longer. When asked about US timing for the consumer product during Q&A, Mr. White told the whole story with five words: “Submitted. Waiting. Excited. Anticipating. Impatient.” As a reminder, Libre consumer was submitted to FDA for both an adjunctive claim and a non-adjunctive (replacement) claim in 3Q16.

• Would the FDA approve Libre consumer with an adjunctive claim, knowing that patients might use it non-adjunctively in the real world? It will be fascinating to see how the FDA deals with this, in light of Dexcom’s long battle to secure a non-adjunctive claim for G5. On one hand, Libre has a ton going for it – in addition to two six-month RCTs and the 300,000+ users globally, the factory calibration takes out a major driver of CGM inaccuracy (inaccurate fingerstick calibration, especially dangerous false highs). However, Libre is slightly less accurate than Dexcom’s G5 (particularly in hypoglycemia), and does not include alarms (used as an argument in favor of G5’s non-adjunctive claim. Where will the FDA fall on this one? Ultimately, we think the benefit-risk ratio of Libre is outstanding, given what people on insulin therapy are using right now (intermittent fingersticks) and the continued minority penetration of CGM in the US insulin-using population.  
• In the meantime, we’re hearing very positive stateside commentary on the Libre Pro (see ENDO 2017), which was only approved and launched in the US last fall. We wonder if this will educate HCPs on this technology and pave the way for rapid uptake and prescribing of FreeStyle Libre consumer?

3. FreeStyle Libre Trials on Clinicaltrials.gov

There are a number of FreeStyle Libre studies on ClinicalTrials.gov, including a 1,000-patient observational quality of life study in Belgium (investigator-initiated), a 100-patient quality of life study in type 2s (investigator-initiated), a completed Abbott-sponsored trial in 83 pregnant women, and a 76-patient Abbott-sponsored pediatric glycemic control (time-in-range) study. See the table below for an overview, which only includes studies in ClinicalTrials.gov when searching for “FreeStyle Libre.” 

Financial Highlights

4. Global Diabetes Revenue Up 23% YOY; Double Digit Growth Projected for 2Q17

Abbott’s Global Diabetes Care business had a phenomenal quarter overall on Libre momentum, with revenue of $292 million growing 20% as reported and 23% operationally year-over-year (YOY). Since Libre took off in Europe, this is the fourth straight quarter of positive YOY growth – this stretch was preceded by 10 quarterly declines. Management forecasted more double digit sales growth over the next three months, on par with 3Q16 expectations for “pretty heavy double-digit growth out of Libre for the foreseeable future.” Now that is some refreshing optimism in what has been years of challenges for the Big Four BGM players.

Figure 1: Global, US, and International Quarterly Sales (1Q12-1Q17)

5. Libre Drives Strong 29% YOY International Growth

International Diabetes Care revenue totaled $217 million in 1Q17, growing a strong 29% operationally (25% as reported). As expected, FreeStyle Libre drove the quarter’s success, touted by Mr. White for the three C’s: cost, comfort, and convenience. The reported international revenue marks the second highest annual total in five years (next to $223 million last quarter), no doubt a sign of sustained enthusiasm (and presumably retention) for FreeStyle Libre. International sales did fall 6% sequentially from a record 4Q16 ($223 million). Revenue did come in past the $200 million mark in 2Q16 and has stayed there, which will make for more difficult YOY comparisons in the upcoming quarters – presumably growth will slow accordingly.

• Global Libre sales ballpark to ~$105 million if all ~300,000 patients are using two sensors per month (~60 euros per 14-day sensor). This is up from the estimated ~$90 million generated from the 250,000+ using Libre in 4Q16, and the ~$70 million generated from the 200,000+ users in 3Q16. Revenue would obviously be lower if many use Libre intermittently, or if the ~300,000+ figure includes those who tried and stopped using it. In a more conservative case of one 14-day sensor per month, revenue would be ~$55 million (see table above). If the larger number is true, this is a striking ~50% of 1Q17 international sales, up from an estimated ~20%, ~33%, and ~40% in the past three quarters (though the past three quarters only included EU sales). We emphasize that Abbott hasn’t reported specific sales for FreeStyle Libre, so these are complete estimates.

6. Us Diabetes Care Grows 8% against Easy Comparison

US Diabetes Care sales climbed 8% YOY for 1Q17, totaling $75 million. This is the first positive growth in seven quarters, but came on a very easy comparison to 1Q16, when sales fell 32% YOY to $69 million (the lowest total in over a decade). In perhaps a more grounded representation of the quarter, revenue fell 17% sequentially from $87 million in 4Q16. We’re not sure how much of this quarter’s revenue can be attributed to Libre Pro sales, but we suspect it’s quite small given the legacy BGM business and the slow pace to change clinical practice. However, we did hear lots of enthusiasm for the product at ENDO 2017, and Mr. White’s said last quarter that the company will look to “replace the traditional fingerstick business…”

• We heard almost entirely positive commentary on the blinded, retrospective FreeStyle Libre Pro at ENDO 2017. Dr. Irl Hirsch stated that the device has been “amazing” and that he and his colleagues have been “surprisingly impressed. It’s really changing the way we do things already.” Other leaders - Florida Diabetes Center’s Dr. Damon Tanton, USC’s Dr. Anne Peters, and DTS’ Dr. David Klonoff – also seemed highly satisfied with the device. As expected, some desire real-time data and we’ve heard some complaints of over-reporting of hypoglycemia (consistent with the FDA summary data).

Pooled Abbott and J&J Financial Highlights

7. Pooled J&J and Abbott Revenue Grows 3% YOY to $691M – US Drives Weakness, with AbbotT Carrying Int’l Sales to 4% YOY Growth

J&J and Abbott pooled global revenue reached ~$691 million, growing 3% YOY relative to 1Q16 on an easy comparison (-10% one year ago). Pooled 1Q17 sales of ~$229 million fell 8%, whereas pooled international sales of ~$462 million grew 9% YOY on strength of Abbott’s Free Style Libre. Libre has effectively separated these two business trajectories: LifeScan/Animas fell 7% YOY to a record low of $399 million in 1Q17, while Abbott rose 20%.

• As a reminder, direct BGM comparisons between Abbott and J&J are impossible because each company’s Diabetes Care business includes a fraction of non-BGM revenue that is not reported. J&J has Animas insulin delivery and Abbott has continuous sensors (Navigator II, Libre) outside of the US. If Mr. White’s hopes of Libre “overtaking” the BGM business come to fruition (we assume they will eventually), then it may no longer be appropriate to consider Abbott as one of the “Big Three” BGM companies at all!

Selected Questions and Answers

Q: You had a really strong quarter in Diabetes – we actually saw some acceleration in that business outside the US and I was hoping you could make some comments on how FreeStyle Libre is doing? And what are your expectations for that in the US, if you could give us an update there?

Mr. Miles White: Look, I can tell you we're pretty excited about FreeStyle Libre. It is doing very well, doing really well across Europe. As I mentioned I think in my opening remarks, we're in about 30 countries now. The expansion within those countries is going well. I think we're at about 300,000 patients. You can compare that to a like competitor, and I think that stacks up really favorably. We are getting reimbursement across European countries. That's unprecedented. And even within Germany and other countries the reimbursement is expanding. That's helping. In some cases where it’s patient pay [out of pocket], we are still growing very well. Patients are accepting it. So we have both great patient acceptance, great value proposition and then as we said, payers, governments, and so forth are all giving a lot of support to the product because of not only what it does, but the value proposition it represents relative to what patients can do today. It makes a heck of a difference in the care and treatment of diabetic patients, and in their care for themselves. So I think we are pretty excited about this product and the pace at which it's growing and expanding – nothing but good. As far as the US goes, we’re still working with the FDA to get approval. Submitted. Waiting. Excited. Anticipating. Impatient.

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