Continuous glucose monitor and insulin pump makers are a sliver of the medtech industry that have remained successful during the coronavirus pandemic, with patients turning to wearables and other technology-based healthcare as hospitals filled and life went remote.
Diabetes technology companies Dexcom, Insulet and Tandem Diabetes Care ended the first half of 2021 much like they closed 2020, beating the previous year's revenue or sales marks and growing users.
With patients flocking to CGMs and insulin pumps over the last several years, the companies are looking to further expand into existing patient populations, and companies have sights set on patients with Type 2 diabetes.
Dexcom is pouring resources into advertising, including reportedly millions of dollars for a Super Bowl commercial, as well as marketing strategies to ensure that patients and physicians know CGMs are an option for managing Type 2 diabetes.
"It's now all about awareness. We went and doubled the size of our sales force at the beginning of this year, so we get access to more primary care physicians who do see a lot of the insulin using Type 2 patients," CEO Kevin Sayer said during a July 29 earnings call. "We've had a huge increase in the number of prescribers of our product over the course of this year. So that is a big win."
Sayer added that the insulin intensive Type 2 market will "be every bit as penetrated as Type 1 at some point in time."
The Type 2 market could be a crucial driver for a company already consistently growing revenues and profits. Dexcom increased gross profit in the first half of 2021 by 41% and 103% over the first half of 2020 and 2019, respectively. The company brought in $761 million of gross profits in the first two quarters of the year.
Part of the allure of the market is its size. The Centers for Disease Control and Prevention estimates more than 34 million people in the U.S. have diabetes, with 90-95% Type 2.
However, not every patient with Type 2 diabetes will need to track glucose levels as intensely as other patients, and a large number do not require insulin at all. Still, diabetes tech can be an option to help manage their disease, according to the biggest diabetes patient group.
"People on multiple daily insulin injections who have Type 2 diabetes also benefit from CGM, in the same way people with Type 1 do," said Ruth Weinstock, president of medicine and science with the American Diabetes Association, which receives financial support from multiple healthcare companies, including Dexcom, Abbott Laboratories and Eli Lilly.
Even if every patient with Type 2 diabetes does not need or use a CGM, the population is still so large that it could be a significant revenue driver for companies in the space.
SVB Leerink analyst Danielle Antalffy estimates about 3 to 4 million patients with Type 2 diabetes require insulin, and predicts CGM companies could capture over 90% of those patients. Currently, Dexcom estimates that the U.S. Type 2 insulin intensive market is less than 25% penetrated.
"You don't have to get to very big penetration numbers or utilization numbers to get to ... easily a $5 billion [total addressable market,] if not closer to 10," Antalffy said.
Are devices always necessary?
As companies prioritize expansion into the Type 2 market, concerns have been raised about whether diabetes tech devices, which can often be expensive and hard to convince payers to cover, are even necessary for all patients.
Three sensors for Dexcom’s G6 system, which is 30 days of supplies, have an average retail price of about $425, according to the website GoodRx. Two meters for Abbott’s FreeStyle Libre 2 system, which is 28 days of supplies, have an average retail price of $133. The costs can be on top of hundreds of dollars for readers or transmitters.
The products are covered by commercial payers and Medicare for patients with Type 1 and 2 diabetes requiring insulin, which lower’s patients' out-of-pocket costs. However, gaining coverage can be challenging.
Dexcom's Sayer addressed concerns about added costs for patients that already have an expensive disease to manage in a recent interview, saying more clinical trials are needed as there's no "stake-in-the-ground" study to show to payers and physicians.
Weinstock, an adult endocrinologist, said anecdotally that even intermittent use of CGMs has improved diabetes management for patients with Type 2 diabetes who do not require insulin.
CGMs may be expensive but the data collected and shared with patients can also raise awareness about better management strategies and possibly help prevent the long-term, and costly, health degradation that comes with the disease.
"Costly, not only to society, in terms of real dollars — because of dialysis, etc. — but costly to the person and their family, in terms of quality of life and loss of work," Weinstock said.
Pricing has been a key piece to the CGM market competition. Abbott's FreeStyle Libre products have been the cheaper option; however, Dexcom has narrowed the margin with its shift to primarily distributing devices through the pharmacy channel rather than the durable medical equipment channel.
The company's new G7 CGM system, scheduled to be released later this year, is expected to narrow the margin even more.
Pricing isn't the only strategy. While Abbott is primarily concerned with getting to the lowest price, Dexcom has started working directly with commercial payers like UnitedHealthcare to expand coverage by attempting to show the benefits of CGM compared to other treatments, such as lowering medication use and hospitalizations.
A different opportunity for pumps
Tandem and Insulet are also prioritizing the Type 2 market. However, the opportunity is not as large for the pump makers as a significant number of patients with Type 2 diabetes do not require any insulin or may not need insulin at the levels required for pump use.
"Not to say that there aren't some people with Type 2 diabetes who benefit from pumps, there are. But there are many, many more, I think, who don't require an insulin pump because they don't require that kind of complex insulin delivery system, but still can get benefits from CGM," Weinstock said.
A March SVB Leerink survey of endocrinologists and nurse practitioners suggests insulin pump penetration among patients with Type 2 diabetes requiring intensive insulin treatment is likely to top out at about 30%, which may even be too favorable of a mark.
"I'm not sure we'll get there … I don't think we're going to have the majority of insulin intensive Type 2 [patients] on an insulin pump, but we will have all of them on a CGM," Antalffy said.
The market can still be crucial as competition in the space heats up.
Insulet CEO Shacey Petrovic said during a Thursday earnings call that patients with Type 2 diabetes made up about 35-40% of new users in the second quarter. The company is also following Dexcom's lead in the Type 2 market by investing in direct-to-consumer marketing.
Insulet grew gross profit in the first half by 30% compared to the same period last year and by 57% compared to 2019. Gross profit totaled $350.2 million in the first six months of 2021.
The company is facing some unexpected challenges as the Omnipod 5 product release has been pushed back from the first half of 2021 to late in the fourth quarter. The product has been hyped by analysts, with J.P. Morgan calling it one of the top product releases of 2021, because it will be cheaper than Tandem's offerings and can work with CGMs as part of an integrated management system.
Rival Tandem is also prioritizing the Type 2 population. CEO John Sheridan said during a Wednesday earnings call it's beginning a clinical study to expand labeling for the Control-IQ technology to patients with Type 2. The technology allows Tandem's pumps to link and communicate with CGMs to automatically deliver insulin.
The study will begin in the next several months and likely followed by a larger pivotal trial in 2022, according to Sheridan.
Similar to the CGM space, pricing is a large piece in the insulin pump market. Pumps offered through the durable medical equipment channel, how Tandem primarily sells, can require an upfront payment of as much as $5,000.
Meanwhile, Insulet is mirroring a strategy used by CGM companies and selling pumps through the pharmacy channel, lowering product costs and allowing for a pay-as-you-go system rather than bulk, upfront payments.
As Insulet further builds its business, Tandem has actually increased profits at higher rates over the last two years. The company grew profits in the first half by 58% and 99% compared to 2020 and 2019, respectively, with profits totaling $165.7 million in the first two quarters of 2021.
Despite the smaller market opportunity, insulin pump players are still targeting and prioritizing the Type 2 population going forward, and they are likely to benefit from the persistence of CGM makers.
"What the CGM companies have done is really dramatically displaced blood glucose monitoring in the Type 1 population, and now they have their sights set on the Type 2 population," Petrovic said in February.