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Dexcom has powerful ally if Apple gets into its diabetes niche

by April 19, 2017 General
Dexcom and Verily hope to get this version to market in 2020. (Bloomberg)

Dexcom Inc. is working with Alphabet Inc.’s health unit, Verily, to deliver smaller, cheaper versions of its glucose monitoring devices. The alliance may calm investors after Dexcom slipped last week when CNBC reported Apple has a small team of biomedical engineers developing sensors that can noninvasively and continuously monitor blood sugar levels to better treat diabetes. An Apple spokeswoman declined to comment on the report.

“A product here would require a significant scientific breakthrough,” Doug Schenkel, an analyst at Cowen & Co., wrote in a note about the Apple news. “Companies have been trying to develop products here for decades [and] no one has succeeded.”

Verily knows this well. Its first effort, a smart contact lens originally designed to continuously measure glucose in tears, has hit scientific obstacles. (The latest issue of Bloomberg Businessweek includes a longer look at Verily’s business.)

Verily’s partnership with Dexcom may be more fruitful. The two companies are working to shrink Dexcom’s current glucose monitors and aim to start selling a new version next year. But the real showstopper could be a later device roughly the shape of a guitar pick and as thick as mouse pad. Verily, which designed the hardware, is packing a battery, antenna, chip and even a tiny accelerometer inside this gadget, which would measure blood sugar and track physical activity.

Dexcom and Verily hope to get this version to market in 2020. They’re eager to target patients with type 2 diabetes, a market that is more than 20 times larger than the type 1 market.

Type 1 diabetics, usually diagnosed in childhood, can’t create insulin because their immune system attacks the pancreas cells that make it. Without insulin, cells cannot absorb sugar, which is needed for energy. Type 2 diabetics are more typically diagnosed in adulthood, having become insulin resistant over time.

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Since type-2 diabetes is not immediately life-threatening, that will be a harder sell for Dexcom and Verily. Dexcom’s current products can cost $3,500 a year or more without insurance coverage, according to Chief Executive Officer Kevin Sayer. A cheaper product may be attractive for short-term use by type 2 diabetics who are newly diagnosed and learning how to control their blood sugar levels, Sayer said. He declined to comment on pricing for the future devices.

The biotech executive praised his big tech partner, which is working to reduce the size and cost of the monitors. When Verily initially approached Dexcom proposing a partnership, the Alphabet unit “was thinking way bigger than we thought was possible,” Sayer said in a recent interview.

Verily could help Dexcom expand into new Asian markets. In January, Verily received an $800 million investment from Temasek Holdings Pte, the Singapore state investment company. The city state does a lot of business in China, where Dexcom is not active. It’s an alluring market. Roughly 110 million people in China have diabetes and the rate of type 2 diagnoses has exploded in recent decades, according to the World Health Organization.

Schenkel noted that Dexcom’s recent share weakness is about competition from medical peers, like Medtronic Plc, not just Apple. The Verily partnership gives Dexcom a shot at addressing the “entire spectrum of diabetes care,” the analyst said. “The market opportunity is vast, and there is room for multiple players.”