Glucovation fundraising page shares new info on efforts to develop and commercialize consumer-focused wearable sensor for glucose tracking – June 23, 2014

Based on a fundraising page posted before ADA at http://www.fundable.com/glucovation, there is now much more information on Glucovation’s efforts to develop and commercialize a consumer-focused wearable sensor for glucose tracking (“SugarSenz”). We initially encountered the company at International CES 2014 (otherwise known as the Consumer Electronics Show) in Las Vegas in January, and this public webpage represents considerably more information shared by the company since that time. As we noted in that report, Glucovation was founded in 2013 by former Dexcom engineers and hopes to develop a low-cost, no fingerstick calibration, sub-10% MARD, seven-day-wear, self-applicating, ANT+-based or Bluetooth LE (transmission to a smartphone or watch), minimally invasive (32-gauge, 5 mm), non-enzymatic-based CGM for general use in the consumer market (diabetes prevention, weight loss, sports). On June 6, Dexcom filed a civil suit against Glucovation’s founders alleging breach of contract, trade secret theft, unfair competition, among other complaints. Dexcom has requested a jury trial. Though we are not legal experts, the case against Glucovation seems quite persuasive based on the evidence outlined in the case briefing (see below).

The Fundable.com page details the company’s approach and thinking, which we think is interesting considering how broad they would like the technology to be used. As background, instead of showing a glucose value and trend (like traditional CGM), the receiver/app will show green/yellow/red lights along with several broad metrics (Glucose Variation Index, Glucose Rate Indicator, Total Daily Glucose Index, Glucose Meal Index) – the idea is that this would be more helpful to those who don’t even have diabetes is part of the aim. The focus appears to be on early-adopter, motivated, quantified-selfies that want greater insight into their own physiology – it also strikes us as perhaps more appropriate for people with prediabetes who are in “prevention” mode (think retired engineer). Through conversations with regulatory experts, management believes an FDA 510(k) clearance may be possible, rather than the more rigorous PMA that is needed for traditional CGM. The company has not yet approached the FDA, it said. We’re not sure what the predicate device would be, and our assumption is that even if it’s a “consumer” device, the FDA may well require a PMA – as always, we note we are not regulatory specialists and the devil will as usual be in the details.

Glucovation management said it has completed testing of alpha prototypes and expects to wrap up beta prototype testing by late summer/early fall. The company’s biggest obstacle is funding, which is obviously a major one – as we understand it from conversations with management, raising VC money as an early stage medical device company has proved quite challenging. We would add that we’re not sure VC funds would be optimal anyway since managing venture capitalists unfamiliar with diabetes can also be challenging. Presumably, there are a range of reasons funding has been challenging – legal is probably chief among them as well, now that there is pending lawsuit. The goal of the current Fundable campaign is to raise enough funds to get through beta testing, which would presumably be followed by a Series A round if a whole host of things went well – we assume this is in the low millions of dollars. Glucovation said it could launch into the consumer market in under two years with full funding of $15-$20 million; that will of course depend on many factors, most notably how regulatory conversations go, what happens on the legal and IP fronts, and what the reimbursement/consumer business model prospects look like (a major question for funders). Notably, Glucovation management told us that it is not concerned about IP issues, as the company is using a novel sensor chemistry that operates on a fundamentally different principle than current commercially available CGM systems. We are not sure if this is a sound basis for the view and hope to learn more on this over time – for now, it’s unchartered territory.

• On June 6, Dexcom filed a civil suit against Glucovation’s founders alleging breach of contract, trade secret theft, unfair competition, among other complaints. Dexcom has requested a jury trial. The case briefing notes that while still on Dexcom’s payroll, Glucovation founders Dr. Robert Boock, Dr. Jeff Suri, and Ken San Vicente “conspired to leave Dexcom, to start a competing company, Glucovation, and then used DexCom's confidential and trade secret information to jumpstart their own company, Glucovation... Thus far, Defendants have used unlawful and unfair means to develop and market a prototype that is shockingly similar to Dexcom’s products within one year of starting Glucovation in comparison to the 15 years and approximately $480 million in accumulated deficit incurred by Dexcom to properly independently research and develop its own products and technology... This lawsuit is intended to stop Defendants' unlawful tactics and continued misappropriation of Dexcom's confidential and trade secret information.”
  
  • Though we are not legal experts, based on the briefing, Dexcom appears to have a very persuasive case Glucovation on a number of fronts: 1) together the three Glucovation founders “knew substantially all of DexCom's confidential proprietary technical and product information”; 2) all three unexpectedly resigned; 3) all three signed a form when they left Dexcom that reaffirmed their continued obligations to maintain the confidentiality of Dexcom's information; 4) the prototype Glucovation product is very similar to Dexcom’s product (adhesive design, transmitter); 5) the Glucovation founders began meeting in October 2012 to discuss and start planning Glucovation, well before they resigned in 2013; 6) the founders appear to have deleted emails to hide what they were doing; 7) Glucovation is targeting the weight loss and sports market, areas where Dexcom conducted confidential market research and developed business strategies; among other issues. See the case briefing for the full details.
• Glucovation’s sensor is still early in development at this point though it is said to have garnered interest from Garmin, Basis, Microsoft, and Samsung (certainly all major players in the consumer wearable space). The goal is a $20/sensor price point (seven-day wear), $150 for the durable electronics, and a free phone/watch app. [For context, Dexcom’s G4 Platinum retails for ~$70 per sensor and ~$800 for the starter kit.] Though $20/sensor is an improvement from Dexcom’s pricing, it is still fairly expensive for a consumer product (~$1,000 per year for 24/7 use of the sensors) and we don’t see the two as very comparable since we don’t see them competing for the same patients. Of course, even capturing a small part of the total potential consumer market that would otherwise not be pursuing CGM represents a significant business opportunity, and we’re glad to continue to see lots of focus on monitoring health in multiple respects.
• There is still a long road ahead for Glucovation, and much has to go right for the company to succeed.  The team is comprised of three former prominent Dexcom scientists and engineers with over 25 years of sensor development experience: Dr. Robert Boock (Dexcom’s former Senior Technical Director of R&D), Dr. Jeff Suri (former Senior Scientist), and Ken San Vicente (former Principal Engineer). [The Fundable page notes that Dr. Boock “invented the entire core G4 Platinum sensor technology and led its development and commercialization.” This was surprising positioning as technologies aren’t usually entirely invented by one person, but again we have no detailed view on this.]
  
  • The “consumer” angle is an interesting one for CGM, especially given the rising popularity of wearable fitness trackers and the opportunity for novel technology like this to assist in preventing type 2 diabetes. In one sense, Glucovation could be using a niche market that is less regulated/scrutinized to launch a very novel innovation (i.e., a la Clay Christensen’s approach in Innovator’s Dilemma) – this is pure speculation on our part.  
  • The “dumbed-down” data display (e.g., red/yellow/green) approach strikes us as innovative for non-diabetes applications, where there is so little awareness about the clinical meaning of glucose meter measurements, glucose variability, and the like.
• Given the planned level of sensor accuracy (sub-10% MARD), Glucovation is currently exploring licensing the medical application of the technology to interested parties. We could imagine several players in diabetes technology that could be interested, depending on how challenges play out, including Medtronic, J&J, Becton Dickinson, Roche, and possibly Bayer – IP and legal concerns, however ,are a major unknown. In speaking with Glucovation CEO Dr. Robert Boock, he told us that the company’s “DNA is sensor accuracy.” While a consumer-focused CGM could theoretically be less accurate, Glucovation plans to make the product as accurate as possible. This way, there is option value to go into the medical device space and license the technology to a big player.
• As we understand it, Glucovation management is not concerned about IP issues.  The company has sought and received freedom to operate opinions and have recently filed provisional patents on several of the key aspects on this technology. The core sensor technology is non-enzymatic, which makes it different from Dexcom’s glucose-oxidase approach, according to management. As noted above in the discussion of the pending lawsuit, IP is far from locked up at this point.
• Glucovation’s non-enzymatic, minimally invasive sensor is based on an unspecified proprietary molecule. The prototype sensor on Fundable.com includes an oval-shaped adhesive with a plastic hinged door (similar to the Insuline InsuPad) on top for the sensor and transmitter. Closing the plastic door places the 32-gauge sensor 5 mm under the skin (“transcutaneous”).
• Glucovation has also developed an enzyme-based system with its novel electrochemistry – this could offer redundant sensing for artificial pancreas applications. The system would have the same form factor as the current prototype, but two sensors with different sensing chemistries. The company believes this approach would still be easily manufacturable at scale; this also is an unknown.

• Glucovation was named one of San Diego’s 2014 “Cool Companies” by the San Diego Venture Group. Thirty companies discussed their businesses in front of 700+ attendees and 100+ VCs on June 19 at the 2014 Venture Summit – we await a report on this meeting.
   

Close Concerns Questions

Q: How will the FDA perceive Glucovation’s product? Will it require a full PMA, or will the data display approach sufficiently make the case for a 510(k) application?

Q: What is the addressable market willing to pay for Glucovation’s device?

Q: What players in diabetes would be most likely to license the medical application of Glucovation’s technology?

Q: How much demand will Glucovation see from people with prediabetes? Are any studies planned with this population?

Q: What was the reception to Glucovation at the San Diego Venture Group meeting?

--by Adam Brown and Kelly Close