Medical device companies are unleashing new diabetes treatment products that promise improved quality of life for patients and a potential stake for the companies in a huge and growing market.
Abbott Laboratories (ABT), Medtronic (MDT) and Tandem Diabetes (TNDM) are among those jockeying for a piece of the diabetes treatment market, which could be worth well north of $2 trillion by 2030.
The medical devices are a boon for insulin-dependent diabetics — a group BMO Capital Markets analyst Joanne Wuensch estimates at 3.3 million people in the U.S.
“We’re at a unique period of time where the FDA, companies and technology are all moving in the same direction,” Wuensch said.
- 1 Coping With Diabetes
- 2 How Diabetes Treatment Is Changing
- 3 Type 2 Patients May Need Insulin
- 4 A Massive Opportunity in Diabetes Treatment
- 5 Medical Device Companies Change The Dynamic
- 6 Medical Devices Still ‘Vastly Under-Penetrated’
- 7 New Medical Devices To Launch In 2019-21
- 8 Devices Gain Acceptance Among Insurers
- 9 Heyday For Medtechs
Coping With Diabetes
One patient to benefit is Ambar Chacoma, a 12-year-old resident in Glendale, Calif. Ambar was diagnosed with type 1 diabetes at age 9.
Managing Ambar’s diabetes was “a nightmare,” her father, Carlos Chacoma, told Investor’s Business Daily. Every two hours, Chacoma or his wife checked Ambar’s blood sugar levels — day and night. The duo took turns checking on Ambar at “1 a.m., 3 a.m., 5 a.m. and 7 a.m.”
“It was shots and needles for a year,” he said. After that, Ambar began using a Medtronic device which measures her blood sugar and delivers insulin automatically. It was a “life-changer.”
“Before, with the shots, every time she went out, always my wife or I had to go with her,” he said. “We weren’t going to take the risk of letting someone take our daughter without knowing about the disease. Now, she goes on field trips. She’s going to New York next year by herself with the school.”
How Diabetes Treatment Is Changing
Modern insulin pumps and continuous glucose monitors are changing diabetes treatment, Wuensch says. The Food and Drug Administration recently began allowing companies to pair their medical devices for diabetes, combining pumps and monitors.
New medical devices are coming down the pike, she said in an interview.
“Pipelines are relatively full through 2020 and we’re just starting to look around the corner at what might be after that,” Wuensch said.
In a healthy person, the pancreas makes a hormone called insulin. This helps maintain the balance of a blood sugar called glucose and salt in the body. In diabetic patients, the pancreas doesn’t function properly.
There are two types of diabetes. Type 1 diabetes, which inflicts Ambar Chacoma, is genetic. Patients are often diagnosed as children. Their bodies don’t produce insulin. Type 2 is a degenerative condition and patients don’t always need insulin. Sometimes they may take oral medicines.
Type 2 Patients May Need Insulin
But diabetes can progress to the point that even type 2 patients need insulin.
Medical devices aim to prevent glucose from rising or falling to dangerous levels. Too high, and a patient can develop cardiovascular disease, kidney failure, nerve degeneration or go blind. Too low, and a patient can fall into a coma or die.
For years, insulin-dependent patients have used glucose meters. To use these devices, they must prick their fingers and collect a drop of blood on a test strip. From there, the diabetic patient calculates how much insulin they need to inject via syringe.
But that can be taxing, especially for parents of young children, Carlos Chacoma says.
“We’re not nurses,” he said. “My wife and I didn’t know anything about needles. We learned in one day how to use the needle and to do it in a way that doesn’t scare our daughter.”
The family also had to learn the mathematics behind glucose monitoring. “We were overworked,” he said.
A Massive Opportunity in Diabetes Treatment
Diabetes treatment is a massive market. In 2017, the cost of diagnosed diabetes treatment jumped to $327 billion in the U.S., surging from $245 billion in 2012. Estimates vary globally, but some put the cost of treating diabetes at well over $2 trillion by 2030.
Medical device companies are hoping for a sizable piece of that market. In the winter quarter, five publicly traded companies with medical devices for diabetics reported $1.72 billion in revenue. That puts the group on a run-rate of $6.88 billion for the year.
Three of those companies are pure players in the diabetes treatment space. For 2019, Tandem, Dexcom (DXCM) and Insulet (PODD) collectively expect $2.09 billion to $2.18 billion in sales. That would be a rise of about 20% year over year.
Medtronic and Abbott are among the biggest medical device companies. Neither offer guidance for their diabetes segments. In their quarters ended in January and March, respectively, the duo put up a respective $610 million and $566 million in sales of medical devices for diabetes treatment.
And there’s room to grow. Research firm Grand View expects the market for medical devices in diabetes treatments to be worth $35.5 billion by 2024. This comes as the number of diabetes cases across the world swells. Globally, more than 400 million people are diabetics.
Medical Device Companies Change The Dynamic
Medtronic, Abbott and Dexcom are gaining traction with their continuous glucose monitors, or CGMs. These body-worn medical devices track glucose levels in real time. Medtronic, Tandem and Insulet all have insulin pumps, body-worn medical devices that steadily deliver insulin.
Insulin pumps have been around for decades, but modern versions are sleeker and more discreet. They can also be paired with a CGM, allowing the pump to automatically stop glucose from dropping too low.
The new FDA iPump designation — officially dubbed Alternate Controller Enabled infusion pumps — allows patients to pick their own combination of insulin pump, CGM and control algorithm. Medtronic offers its own system, while other medical device companies are pairing up.
Automating the insulin delivery is key for the parents of type 1 diabetics, Lake Street Capital Markets analyst Brooks O’Neil said in an interview. A diabetic coma is a “big-time risk” when you’re asleep — and unmonitored. That’s why the Chacoma family checked on Ambar every two hours.
“The innovation of having a pump connected to a continuous monitor that will automatically shut off if the pump and the algorithm are reading that the (patient’s glucose level) is going too low, that’s a huge, huge innovation,” O’Neil said. “It’s a revolution.”
Medical Devices Still ‘Vastly Under-Penetrated’
BMO analyst Wuensch estimates there are 1.6 million type 1 patients in the U.S. and 1.7 million type 2 patients who are insulin-dependent. The pump market is worth $2.3 billion globally and “that’s vastly under-penetrated,” she said.
Just 30% of type 1 diabetics use an insulin pump and 20% use a CGM, she says. But interest is rising as companies make sleeker systems that are easier to use. Ambar Chacoma uses what Medtronic calls its MiniMed 670G system, which integrates a CGM with an insulin pump.
It’s made a dramatic difference for his daughter, Chacoma says. During that year of “shots and needles,” Ambar frequently missed class or lunchtime. Every two hours, the 12-year-old needed a finger prick and, sometimes, an insulin injection. Now, Ambar is taking part in managing her disease.
The 12-year-old is still ballet dancing, and she’s beginning to understand the signs portending high and low glucose. Strenuous activity often impacts those levels, and Ambar knows to drink some juice if her blood sugar falls too low, Chacoma says. The family often checks with her to ask, “How’s the number?”
Ambar has experienced several alarming highs and lows in glucose. So the learning process is ongoing.
“It’s not like a headache that you take an aspirin and a few hours later you’ll be OK,” he said. “You need to learn to manage this your whole life.”
New Medical Devices To Launch In 2019-21
Several new medical devices will launch in 2019-21, analysts say.
Insulet will soon fully launch its OmniPod Dash, a disposable, tubeless insulin pump. In the second half of 2019, Tandem is expected to seek approval for its next-generation T:slim X2 pump, which aims to control low and high glucose levels.
The latter puts Tandem closest to an artificial pancreas, Lake Street’s O’Neil says. It can be integrated with Dexcom’s CGM, which doesn’t require calibrating finger sticks. In 2020, Tandem is expected to launch a smaller pump called T:sport.
In 2020, the market could see new closed-loop systems, sometimes called artificial pancreases. Analysts expect Insulet to launch its OmniPod Horizon. Medtronic is also working on a closed-loop system. Further, Dexcom could launch its next-generation CGM in late 2020 or early 2021, analysts say.
BMO analyst Wuensch sees “a slew of new, sleeker and more automated pumps entering the market in 2019 and 2020, and the adoption of closed-loop systems that pair pump and CGM technologies in the quest for an artificial pancreas.”
Wuensch also sees greater physician buy-in. In a February survey of physicians, 57% said they would prescribe an insulin pump to a type 1 diabetic, and 11% said they would prescribe the medical device to a type 2 patient.
Devices Gain Acceptance Among Insurers
Meanwhile, medical devices for diabetes treatment are gaining favor with insurers. More than 1.3 million people in 46 countries use Abbott’s CGM, a device called Freestyle Libre, says Joel Goldsmith, senior director of digital platforms for Abbott’s diabetes business.
Abbott has achieved that over a four-year period on the market. The medical device has full or partial insurance reimbursement in 33 countries, Goldsmith said in an interview. Depending on the insurer, U.S. patients pay nothing or up to $75 per month for Freestyle Libre.
Lake Street’s O’Neil is particularly bullish on Tandem stock, which he says he owns.
Tandem stock has scored a huge recovery in a little over a year. However, Tandem stock was wrecked alongside the entire health care sector Wednesday as Wall Street grappled with a “Medicare for All” proposal from presidential candidate Bernie Sanders.
Shares of Tandem peaked at 74.81 in March after hitting a low of 2.14 in February 2018. At the time, it was suffering in the aftermath of the FDA’s approval of Medtronic’s MiniMed 670G insulin pump.
The MiniMed 670G automatically shuts off insulin delivery when glucose levels fall too low. Tandem toppled as the medical device “threw the market while everyone tried to figure out if this was the Holy Grail or not,” O’Neil said.
Heyday For Medtechs
Shares of other medical device companies in diabetes treatment have experienced a recent heyday. Insulet stock hit a 28% year-to-date gain in March. At the same time, shares of Abbott had climbed nearly 11%.
But all five stocks are now well off their highs on Sanders’ proposal for a single-payer health care system. The entire medical sector was hit Wednesday as Medicare and Medicaid Services Administrator Seema Verma called the proposal the “biggest threat to the American health care system.”
Analysts say visibility is increasing for the diabetes treatment realm. Amazon (AMZN) is now selling blood glucose monitors under a partnership with medical group Arcadia. But most observers doubt the tech giant can make waves in the diabetes treatment market.
These products are from the old guard of devices requiring a finger prick and test strip, Abbott’s Goldsmith says. Some of the biggest players in that market — Johnson & Johnson (JNJ) and Bayer (BAYRY) — have sold off their strip and meter businesses.
“This isn’t surprising to me that they picked a commodity business like strip-based glucose monitoring where there’s intense pricing pressure,” Goldsmith said of Amazon. “There’s not a whole lot of room for innovation in strips and meters.”
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
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