Abbott 3Q14 – Worldwide revenue down 6%, driven by 16% US decline; FreeStyle Libre now available in the UK and France – October 22, 2014

Last week, Abbott CEO Miles White led the company’s 3Q14 financial update. The clear highlight of the call was Mr. White’s extensive (relatively speaking!) commentary on the diabetes business – more than we’ve ever heard – and in particular, deep enthusiasm over the launch of FreeStyle Libre and confidence in the investment. For more on financial and pipeline highlights, including extensive detail on FreeStyle Libre, please see below.

Financial Highlights

1. Worldwide Diabetes Care totaled $300 million, down 5% operationally and 6% as reported year-over-year (YOY). This was against a relatively easy comparison, as sales rose 1% in 3Q13.

2. Negative year-over-year growth reflected US weakness, where sales totaled just $102 million, a decline of 16% YOY against a particularly easy comparison (down 10% in 3Q13); however, we note that this is an improvement from the 27% decline the company has seen in the US for the past two quarters.

3. International Diabetes Care revenue reached $198 million, up a modest 2% operationally and 1% as reported YOY. This was relative to a particularly challenging comparison of 8% sales growth in 3Q13.

4. Combined worldwide revenue for J&J, Abbott, and Roche totaled $1.5 billion, remaining flat YOY relative to pooled revenue in 3Q13 ($1.5 billion). Abbott had the least impressive quarter of the Big Four (down 6%) vs. J&J (flat) and Roche (up 1%).

Pipeline Highlights

5. The clear highlight of the call was CEO Miles White’s extensive (relatively speaking!) commentary on the diabetes business – more than we’ve ever heard. Libre was characterized as a “spectacular” product that will drive a “whole new generation of performance.”

6. FreeStyle Libre was made available over the past week through online web stores that have opened in the UK and France; management revealed plans to open stores in five additional European launch countries in the near future (Germany, Italy, the Netherlands, Spain, and Sweden).

7. Abbott is beginning the launch of Libre with “modest financial expectations but aggressive marketing intent.” The initial target market remains insulin-dependent frequent testers.

8. Management revealed that it has received “very positive feedback” from consumers and professionals who have tested Libre; our brief online scouring of EU social media sites has confirmed this sentiment.

9. During Q&A, management was asked for a formal US timeline, but deferred a response – as of EASD 2014, the plan was to begin a pivotal trial by year-end.

10. Also on the pipeline front, Abbott’s FreeStyle Precision/Optium Neo BGM received FDA 510(k) clearance in September, reflecting a seven-month FDA review. There were no additional pipeline updates on Abbott’s FreeStyle InsuLinx or FreeStyle Precision Pro.

Financial Highlights

1. Worldwide Diabetes Care totaled $300 million, down 6% operationally and 5% as reported. This was against a relatively easy comparison as sales were flat operationally and rose 1% as reported in 3Q13. Performance was in-line with management guidance from 2Q14, which anticipated mid-to-high single-digit operational decline. We’d note that this marks the fourth consecutive quarter of global decline, and only two quarters of Diabetes Care growth in the past 13 quarters (since 1Q12). Still, the 6% decline in sales improved on two consecutive quarters of sales dropping 10%. Abbott also returned worldwide sales to $300 million after two straight quarters of sub-$300 million revenue. 

• On a more positive note, sequential growth of 2% from 2Q14 improved on two consecutive years of negative sequential growth between 2Q and 3Q. It was good, at least, to see growth return to $300 million, and we suspect that milestone was a real goal ($300 million or higher). The performance also marks two consecutive quarters of positive sequential growth for the first time since 2Q11/3Q11. Management expects a mid-single-digit operational decline in 4Q14 (international growth offset by continued declines in the US).

Table 1: Abbott Diabetes Worldwide Sales

2. US Diabetes Care sales were down 16% YOY, totaling just $102 million in 3Q14. This came on an easy comparison to a sales decline of 10% in 3Q13. However, we note that this was a significant improvement from the 27% decline the company has seen in the US for the past two quarters. The US continues to be a challenging region for Abbott, and the company has not seen positive growth in the business in the past seven quarters (since 4Q12), including double-digit declines every quarter since 4Q13. The three quarters of revenue this year represent the three lowest totals ever recorded for Abbott’s US business in our financial modal (which stretches back over a decade). Sequentially, US sales grew 4%, from a very low base in 2Q14 ($98 million, the second-lowest quarterly US revenue in a decade).

• In contrast to 2Q14, management expressed optimism that pricing pressures in the US are abating, evidenced by a more moderate rate of revenue decline. Considering that competitive bidding (effective July 1, 2013) has annualized at this point, this characterization is not surprising and is also reflected in more modest declines among the other Big Four BGM companies that have reported thus far (Roche 3Q14; J&J 3Q14; Bayer reports October 30). For background, Roche North American revenue declined only 2% in 3Q14, while J&J US sales were up 3% YOY. Abbott’s optimism in light of the company’s relatively negative US performance underscores the continued difficulty of the US BGM environment is right now.
• During Q&A, management emphasized that it’s very happy to be patient regarding the performance in the US Diabetes Care business: “Some dimensions of the future of the device business require some patience” – though this comment spoke broadly to the overall Medical Device business, it certainly applies aptly to US Diabetes Care. As a reminder, management pointed out in 2Q14 that the US business still had a healthy gross margin, remained profitable, and was cash generating. Although management did not speak to the transition of the business in this quarter’s call, we assume all this continues.

Table 2: Abbott Diabetes Sales – US

3. International sales in 3Q14 reached $198 million, up 2% operationally and 1% as reported against a particularly challenging comparison (up 9% operationally and 8% as reported in 3Q13). Sequentially, revenue grew for the second consecutive quarter, a modest rise of 1% relative to 2Q14. Echoing comments from 2Q14, management remarked that it expects to focus on driving care in developing and emerging markets. We assume that this relates to efforts to bring the FreeStyle Libre to additional countries in the near term – the Libre launch sounds very global, which obviously is of great benefit to patients. Abbott did not provide much more granularity on the international market, though an increasing proportion of global revenue continues to come from sales outside the US. (Granted, this has been driven more by the poor performance stateside than outstanding performance internationally.) Based on this quarter’s sales, 66% of the company’s Diabetes Care business is international, up from 62% in 3Q13 and 51% for the full-year 2005. The international business is on a positive trajectory, a trend we expect will continue with the launch of FreeStyle Libre.

Table 3: Abbott Diabetes Sales – International

4. Combined worldwide revenue for J&J, Abbott, and Roche totaled $1.5 billion, remaining flat YOY relative to pooled revenue in 3Q13 ($1.5 billion). We’d note that this was a somewhat easy comparison as pooled revenue for the companies declined 3% YOY in 3Q13. Abbott put together the least impressive performance (down 6% YOY) for the second consecutive quarter vs. J&J (flat) and Roche (up 1%). We find this particularly notable considering that the company performed better than Roche and J&J in all four quarters last year. As a note, it is difficult to make direct comparisons between J&J, Abbott, and Roche, given that each company’s Diabetes Care business includes a fraction of non-BGM revenue (J&J and Roche have global insulin delivery and Abbott has continuous glucose monitoring outside of the US). We look forward to adding the last of the Big Four – Bayer – to this comparison when the company reports on October 30.

Table 4: J&J, Roche, and Abbott Worldwide Quarterly Performance (YOY)

• Roche’s global revenues accounted for 43% of the three companies’ pooled revenues. This held steady relative to Roche’s share in 3Q13 (41%). Regionally, J&J holds the greatest percentage of revenue in the US at 52% (vs. 52% in 3Q13), while Roche holds the greatest share of international revenue at 50% (vs/ 49% in 3Q13). Overall, we were impressed with how steady market share has been — See Table 2 for further granularity on respective shares.
• Combined US revenue for J&J, Abbott, and Roche totaled $466 million, down 6% YOY against a particularly easy comparison in 3Q13 when pooled revenue totaled $499 million (down 16% YOY). The US continues to be a challenging region for growth despite the annualization of competitive bidding. Management from all three companies has remained positive, citing more modest declines as evidence that pricing pressures are tapering. That said, we'd note that revenues are being assessed relative to particularly easy comparisons, leading to somewhat distorted pictures of current performance.

Table 5: 3Q14 Diabetes Care Revenue Comparison for J&J, Roche, and Abbott

Currency conversion for Roche is based on the average exchange rate on oanda.com (e.g., 1.0948 USD per CHF for July 1 – September 30). Different results are possible with different currency conversion. Roche does not report revenues for an international category, and the international value we report includes the company’s EMEA and RoW categories; as such, operational growth is not available. We also note that Roche’s US value is slightly inflated, as it includes revenue from Canada (“North America” sales).

Table 6: 3Q14 vs. 3Q13 Market Share

Pipeline Highlights

5. The clear highlight of the call was CEO Miles White’s extensive (relatively speaking!) commentary on the diabetes business – more than we’ve ever heard. We heard deep enthusiasm over the launch of FreeStyle Libre and strong confidence in the investment. Mr. White characterized Libre as a “spectacular” product that will drive a “whole new generation of performance.” His enthusiasm was even more notable in that some of it came during questions related to the overall Medical Device business. This product is clearly on management’s radar in a big way, which is great to see given the overall business’ challenging financial performance. It’s a bold, brave move by Abbott and we salute the company for innovating in such a challenging environment.

6. FreeStyle Libre was made available over the past week through online web stores that have opened in the UK and France; management revealed plans to open stores in five additional European launch countries in the near future (Germany, Italy, the Netherlands, Spain, and Sweden).

• As a reminder, Abbott debuted the FreeStyle Libre at EASD 2014 – see the detailed coverage in the appendix below. The idea is to overcome some of the limitations of both BGM (pain, inconsistent and hard to interpret data) and CGM (fingerstick calibration, cost, alarm fatigue). The approved system (CE Marked on September 3) consists of a touchscreen reader and a small, round sensor patch the size of a two Euro coin worn on the back of the upper arm. The patch measures glucose every minute in interstitial fluid through a factory calibrated 14-day, subcutaneous sensor (5 mm long, 0.4 mm wide) held in place with a small adhesive pad. A reader is scanned over the sensor (within 1-4 cm; works through clothing) to obtain a real-time glucose reading, eight-hour trend graph, and glucose rate of change arrow in less than one second. To see pictures, click here. The factory-calibrated FreeStyle Libre is approved for dosing insulin and requires virtually zero strips – Abbott recommends a confirmatory fingerstick in hypoglycemia or during times of rapid change.
• In the 75-patient, 14-day pivotal CE Mark trial, Abbott’s factory calibrated FreeStyle Libre system demonstrated an overall MARD of 11.4% vs. FreeStyle Precision capillary fingersticks (87% of points were in Zone A of the Consensus Error Grid, 13% in Zone B). MARD was lowest on day one (15.7%), improved to 11.9% on day two, and hovered between 10.3% and 11.8% on days 3-14 – this was very impressive sensor stability given the one-hour warm-up, two-week wear, and factory calibration – presumably for a short trial, there likely was not too much hypoglycemia (we estimate it below). The study had 13,195 paired FreeStyle Libre-BGM data points (range: 23-498 mg/dl), though the specific fraction of points in different glucose bins was not provided on the slide; by our estimate, about 3% of values were <70 mg/dl. The MARD was not broken down by glucose range, so accuracy in hypoglycemia is an unanswered question at this stage (and indeed, the product label recommends a confirmatory fingerstick when hypoglycemic). Each patient wore two systems and the study took place at multiple US centers.

7. “I don't know that I can tell you what the potential is to be honest. We’re going at it at the beginning here with modest financial expectations but aggressive marketing intent,” said CEO Miles White regarding Libre. He was appropriately cautious in the near term due to the early stage of the launch, though it sounds like more specific sales numbers/trajectory may come on Abbott’s 4Q14 or 1Q15 call. Management emphasized that it is taking a very consumer approach to the marketing and the technology’s distribution – we have been very impressed on this front, e.g., online ordering without a prescription, accessible pricing relative to CGM at 59.90 euros for the reader and 59.90 euros for each 14-day sensor. As a reminder, Abbott is working to obtain reimbursement via two six-month outcomes studies: REPLACE (n=210 type 2s on MDI, A1c>7.5%) and IMPACT (n=225 type 1s on MDI or pumps, A1c <7.5%) – we expect quite positive results.

• Management emphasized that the company does not want to be “overly reliant” on reimbursement (this seems to be viewed as upside at this point) – the challenge rests in communicating the value proposition of FreeStyle Libre to consumers. His view is certainly good food for thought – it’s certainly worth noting likely that reliance on reimbursement has probably contributed to limited CGM uptake in Europe. There is internal belief within Abbott that the value of the product is “so superior to what’s available today” that patient groups will latch on even without reimbursement. We agree that for many insulin-dependent, frequent testers who cannot afford CGM, FreeStyle Libre has tremendous value.
• In line with previous comments, management confirmed that the initial target market for FreeStyle Libre is insulin-dependent frequent testers (i.e., type 1 and type 2 patients on MDI or pumps). Certainly, the technology could appeal to many patients, though we think this is logical population to start with. Dr. Irl Hirsch said at Abbott’s EASD 2014 symposium: “I can’t think of any reasons not to be on this technology. If you think about cost, you can do the equivalent of 7-8 tests/day and the cost is the same regardless of how many times you swipe. It’s hard to think of a patient who wouldn’t benefit.”

8. Management revealed that it has received “very positive feedback” from consumers and professionals who have tested Libre; our brief online scouring of EU social media sites has confirmed this sentiment (see our appendix for a look at what patients are saying). Bloggers have been overwhelmingly wowed by the simplicity and form factor of the device, the discretion, the ease of a ~1 second reading (without really having to stop what they are doing), and the convenience of unlimited readings. The design has led these individuals to test far more often than they would have on BGM alone. Ultimately, increased adherence and enhanced self-management (via access to overnight trends, etc.) could be the greatest testament to this novel category of monitoring.

• We’d note one common critique of the FreeStyle Libre is that the product has only been approved for upper-arm wear. Patients have expressed reservations regarding the location, despite testimonials that they “can hardly feel the sensor.” Abbott is aware of the sentiment and, per Mr. Jared Watkin’s remarks at EASD 2014, we understand that management is pursuing approval for alternate locations (e.g., stomach, thigh) that could be more discreet. We do not imagine this presents a significant regulatory burden, but ultimately, we assume patients will wear FreeStyle Libre off-label by testing other locations themselves.
• Patients seem keenly aware of the lack of reimbursement for Libre. As a reminder, the sensor is priced quite reasonably – 59.90 euros for the touchscreen reader and 59.90 euros for each 14-day sensor – relative to current CGM (Dexcom 2Q14 average selling prices were ~$885 for the starter kit and ~$72 per sensor, or $288 per month, though in the EU, they are presumably significantly lower). However, calls for reimbursement are a strong reminder that ~120 euros/month out-of-pocket – while still cheaper than CGM – is still a lot for patients to pay.
• Abbott is in the process of conducting two six-month outcomes studies to support reimbursement – REPLACE (n=210 type 2s on MDI, A1c>7.5%) and IMPACT (n=225 type 1s on MDI or pumps, A1c <7.5%). Both studies are currently posted on ClinicalTrials.gov and are recruiting participants. The goal of the type 2 study is to show a change in A1c at six months, while the type 1 study seeks to improve time spent in hypoglycemia at six months. Both trials will compare FreeStyle Libre to standard SMBG. The A1c inclusion criterion is very smart in our view, and it’s good to see that both studies are quite large, especially for a CGM trial.

9. During Q&A, management was asked for a formal US timeline, but deferred a response – as of EASD 2014, the plan was to begin a pivotal trial by year-end. We imagine the biggest gating factor to FDA approval will be the regulatory path to obtaining a replacement claim to dose insulin; Dexcom is working on this front as well, per its 2Q14 call.

10. Also on the pipeline front, Abbott’s FreeStyle Precision/Optium Neo BGM received FDA 510(k) clearance in September, reflecting a seven-month FDA review. Management did not comment on this development in its prepared remarks nor was it mentioned in the press release. The product is a dual BGM/ketone monitor that includes a blood glucose trend indicator and allows HCPs to program a patient’s insulin plan into the device. The product was CE Marked and launched in the EU in September 2013, though this is the first update on the US front we have seen in some time. It’s great to a push toward stateside BGM innovation in spite of the stagnant US market of late – However, we are curious to see whether Abbott pushes this launch forward or will focus its effort on bringing the Libre to the US.

• There were no additional pipeline updates on Abbott’s FreeStyle InsuLinx or FreeStyle Precision Pro. We have not heard an update on either product since a company presentation in August 2013 when management characterized these devices as “near-term” drivers. We continue to await an update on either front.

Diabetes Device Pipeline Summary

Questions and Answers

Q: Can you offer some commentary on FreeStyle Libre and how big a product like this could this be? And could you remind us about the US approval and launch timeline?

A: I don't know that I can tell you what the potential is to be honest. We’re going at it at the beginning here with modest financial expectations but aggressive marketing intent. We're going at this a different way. I don't want to be overly reliant on reimbursement because I think this product has tremendous consumer or user appeal for the insulin-dependent diabetic. And I think the experience for that particular patient or user is so superior to what's available today or what they can do today that our challenge is to establish the value proposition to that patient group. And if we do that well, then it won't be as dependent on the hurdles of government reimbursement, etc., although it may be well enhanced by that at some point.

So we're trying to go about it more from a consumer approach perspective and go direct to the patient with this to the extent that all regulatory circumstances allow. I think it's got great potential. I don't know how to put a dollar value on that yet, so I'm reluctant to forecast one. But our team in Diabetes Care knows that almost any number they give me won't meet my expectations, and I think that's kind of how we leave it internally. It's not clear that we can completely project what the uptake will be or how fast, but we're very pleased by initial reactions of consumers and professionals and physicians and so forth. I think after we've had some months of experience, we'll be better able to put some numbers around what we expect in terms of continuing trajectories, expansion, share gain, et cetera, in the biggest user group there is, which is the insulin-dependent diabetic and the frequent tester.

I think that's the best I can tell you about it at this point. Right now, we've got an awful lot of expectations and hope, and we're not overly-focused on meeting particular numbers, because right now, the numbers are small because it's the initial launch phase. However, it's launched in seven new countries, and that's going to be a pretty good test for us.

Q: Even though everyone is discussing large device consolidation, in light of the strength you have in the Pharmaceuticals and Nutrition and arguably better secular fundamentals in those businesses, why even bother getting much bigger in Devices versus doing tuck-in technologies or focusing on better execution?

A: Well, I'd say, two things. First of all, I'd correct you a little bit, and say we've got three major businesses that are doing really well…That leaves Devices, and I would take that in three pieces and say, the Diabetes Care business actually is doing very well. I think they've stabilized the underlying business relative to the competitive bidding dynamics in the U.S. Every major competitor took a hit there. We just launched a unique and spectacular product that I think is going to drive a whole new generation of performance that we're excited about. So we're pretty happy with how that's progressing at this point….

That leaves Vascular, and Vascular has got its challenges, which I already talked about....you can say the market is slower. All markets are slower. All markets are slower, there's no question about that.

The first issue here is our performance, our strategy, our execution, how we're doing our business in these markets and relative to our competitors. I don't think you abandon commitment to an investment in a business because of your own execution, I think you go fix your execution. And, in our case, that's what I'm going to focus on. Do I think there's still a lot of opportunity in Medical Devices? I do. I think there is opportunity. There are some segments of Medical Devices that are attractive to us and some that are not.

There's some that we would not choose to be in and haven't chosen to be in, and there are some that we would choose to be in, and I'd say that ebbs and flows. It's not clear at given points in time what's going to evolve, what's going to develop. I'd say, we all know that the easy part of it with a big tailwind of innovation funded by government reimbursements and so forth, that's not as easy anymore. Now you've really got to compete, and you've really got to be innovative, and you've really got to be better at it than your competition and you've got to put a value proposition on the table with a product somebody wants and is willing to pay for.

So I think right now my focus on the Device business is both fixing the base of that particular business, as I described, and looking at where we would selectively choose to invest or expand. I think one of the benefits of being large and diverse as we are is that we can afford to absorb occasional poor performance or economic downturn or whatever the case may be and fix a business or improve its performance, but we can afford to be patient about what new opportunities may come along and where we want to invest. There've been a number of transactions that we've done over time to build the company that have been, from a timing standpoint, opportunistic. We've tracked those businesses or those segments for a long period of time, and when an opportunity presented itself that fit and was economically good for us and our investors, then we pounced on it.

And I think, in this case, some dimensions of the future of the device business requires some patience here because the markets, as you know, aren't as favorable as they could be, and it's not clear when that will change, and it's not clear where the new opportunities in some of the areas of devices will be attractive. But I think for the long term and especially in some – out of the U.S. geographies and so forth, there's still a lot of opportunity here. So I'm not ready to throw in the towel on this at all.

Appendix – European Social Media on FreeStyle Libre

• Fun, Young, and Type 1: “I must have tested 40 times on the first day, just because I could…Having that kind of detailed data in front of me is not only allowing me to take control, but it’s persuading me to do so.”
• Diabetogenic: “For me, the benefit of not having to prick my finger to check my BGL is a huge, huge bonus and I know that there are many people who find this the thing they hate most about diabetes management.”
• Ninjabetic: “I can’t feel a thing when I’m wearing it, sleeping on the side that it’s on or when I’m moving my arm (not that I madly flap my arms around anyway!)…If you can afford it then perhaps it might be worth trying it out for yourself as the initial start-up cost is much lower than CGM technology.”
• The Tangerine Diabetic – Compares the FreeStyle Libre and Enlite CGM across availability, accuracy, convenience, software, setup, size, and more.
• #FreeStyleLibre on Twitter:
  
  • @misswhiplash: “Excited and very impatient about the impending arrival of my #freestylelibre … I WISH IT WAS HERE ALREADY.”
  • @justinkb: “Wow. Just wow. Tech geeks will almost want to be diabetic! https://www.freestylelibre.co.uk/default.aspx #freestylelibre”
  • @rustyjellybaby: “First wake up and I'm in love. Not only can I see I've been low but been low since 2am #FreeStyleLibre”
  • @docsamphillips: “#FreeStyleLibre @doctorinsulin @karen_a_adamson. i have been wearing this 7th day. Close to capillary readings”

Appendix – Email Sent on Launch of FreeStyle Libre

Appendix – EASD 2014 Coverage of FreeStyle Libre

An Introduction To Flash Glucose Monitoring

Jared Watkin (VP, Technical Operations, Abbott Diabetes Care, Alameda, CA)

To a standing-room-only audience, Mr. Jared Watkin debuted Abbott’s FreeStyle Libre system (see pictures here), including never-before-shared details on the system’s accuracy and pricing. On the latter, FreeStyle Libre will be priced reasonably (some would say modestly!), paving the way for uptake in Europe as patients pay out-of-pocket at launch: 59.90 euros for the touchscreen reader and 59.90 euros for each 14-day sensor. We can’t imagine that many would buy them out of pocket over a long period; Abbott is currently recruiting for two six-month long studies to support reimbursement (REPLACE in type 2, IMPACT in type 1). Notably, patients will NOT need a prescription to purchase the device at online web shops in Europe, which are expected to open over the next 30 days in European launch countries. The US pivotal trial will begin by the end of the year. On the accuracy front, brand new data was shared from the 75-patient, 14-day pivotal CE Mark trial, where the factory calibrated FreeStyle Libre system demonstrated an impressive overall MARD of 11.4% vs. FreeStyle Precision BGM – consistent with previous data. An on-stage demo of FreeStyle Libre wowed the audience with its simplicity and form factor, and we share more below after an up-close look at the device and a stimulating concluding panel discussion. Though our expectations were very high coming into this talk, we were sufficiently impressed to see how Abbott is launching this novel glucose monitoring technology – the creation of a new category is unquestionably bold, though also a smart idea given the fraction of patients at goal, the low rates of CGM usage worldwide, and an increasingly constrained reimbursement environment. As a reminder, FreeStyle Libre received a CE Mark on September 3.

• In the 75-patient, 14-day pivotal CE Mark trial, Abbott’s factory calibrated FreeStyle Libre system demonstrated an overall MARD of 11.4% vs. FreeStyle Precision capillary fingersticks (87% of points were in Zone A of the Consensus Error Grid, 13% in Zone B). MARD was lowest on day one (15.7%), improved to 11.9% on day two, and hovered between 10.3% and 11.8% on days 3-14 – this was very impressive sensor stability given the one-hour warm-up, two-week wear, and factory calibration – presumably for a short trial, there likely was not too much hypoglycemia (we estimate it below). The study had 13,195 paired FreeStyle Libre-BGM data points (range: 23-498 mg/dl), though the specific fraction of points in different glucose bins was not provided on the slide; by our estimate, about 3% of values were <70 mg/dl. The MARD was not broken down by glucose range, so accuracy in hypoglycemia is an unanswered question at this stage (and indeed, the product label recommends a confirmatory fingerstick when hypoglycemic). Each patient wore two systems and the study took place at multiple US centers.
  
  • This overall accuracy was highly encouraging, especially for a 14-day factory calibrated sensor. It was also largely in line with data collected from Abbott’s pilot studies of the device, as well as the FreeStyle Navigator’s label. A potential criticism was the use of BGM as the reference device, as most CGM studies have some in-clinic days with YSI. However, this 14-day study was very real world and characterized the device’s accuracy as patients would experience it (i.e., relative to fingersticks).
  • Mr. Watkin compared the FreeStyle Libre’s accuracy to other CGM devices’ labels, noting that Abbott’s new product has “leading edge performance compared to other sensors in the field.” His slide was intended to make two clear points: (i) FreeStyle Libre has demonstrated better accuracy than other CGMs; and (ii) FreeStyle Libre requires dramatically fewer fingerstick calibrations.

*BG reference not available; **Data collected with a minimum of four calibrations per day, although product requires at least two calibrations per day.

• FreeStyle Libre will be priced very favorably at launch – 59.90 euros for the reader and 59.90 euros for each 14-day sensor. This equates to a modest 120 euros per month out-of-pocket, much cheaper than current CGM (e.g., per Dexcom 2Q14, average selling prices were ~$885 for the starter kit and ~$72 per sensor, or $288 per month – though in the EU, we are sure they are lower). The favorable pricing should put the novel technology within reach for some European patients at launch, given that reimbursement may not come for some time (see study information below). We commend Abbott for pricing FreeStyle Libre so favorably – this product has been years in the making, and the company easily could have priced it much higher to reap better margins and recoup R&D investment. The accessible price should help expand the glucose monitoring market, offering more patients and providers access to 24-hour glucose data and real-time trend information. We wonder what each reader and sensor cost to make.
  
  • All EU launch markets will have online web shops open over the next 30 days; notably, to our surprise, FreeStyle Libre will not need a prescription in Europe. Combined with the relatively modest pricing, the approach strikes us as more of a consumer product launch than a medical device – this of course jives with the overall uptake of digital health devices and sensors in general. The ability to order online, along with no need to see an HCP, should facilitate pull demand from patients, rather than pushing demand through the traditional medical device avenues (e.g., detailing to physicians, who recommend then product to patients).
  • There is still no formal US timeline, though it was encouraging to hear that a pivotal study will start before the end of 2014. We imagine the biggest gating factor will be the regulatory path to obtaining a replacement claim to dose insulin. Per Dexcom’s 2Q14 call, dialogue was ongoing with the FDA on that front. We salute companies for going through the red tape on this labeling point, and would point out that patients are already routinely dosing insulin off their CGMs in the real-world. Many investigators have said an MARD ~10% is accurate enough for dosing insulin, which would put FreeStyle Libre (MARD: 11.4%) and Dexcom’s G4AP algorithm (MARD: 9.0%) right in the ballpark.
• Abbott is in the process of conducting two six-month outcomes studies to support reimbursement – REPLACE (n=210 type 2s on MDI, A1c>7.5%) and IMPACT (n=225 type 1s on MDI or pumps, A1c <7.5%). Both studies are currently posted on ClinicalTrials.gov and are recruiting participants. The goal of the type 2 study is to show a change in A1c at six months, while the type 1 study seeks to improve time spent in hypoglycemia at six months. Both trials will compare FreeStyle Libre to standard SMBG. The A1c inclusion criterion is very smart in our view, and it’s good to see that both studies are quite large, especially for a CGM trial.
  
  • REPLACE (n=210 type 2s on MDI). This study will take place at 26 sites across Germany France, and the UK. The primary endpoint is change in A1c at six months vs. a control group plus using standard SMBG. The study will include a six-month extension for the device intervention group. Abbott is currently recruiting more than 210 patients with type 2 diabetes on MDI (A1c >7.5%). The study has a primary completion date in May 2015. Clinical trials.gov Identifier: NCT02082184.
  • IMPACT (n=225 type 1s on MDI or pumps). This six-month study will take place at 26 sites across the Netherlands, Germany, Spain, Austria, and Sweden. The primary objective at six months is to compare the impact on time in hypoglycemia (number of hours per day of hypoglycemia excursions <70 mg/dl) using FreeStyle Libre vs. standard SMBG. Abbott is currently recruiting more than 225 patients with type 1 diabetes on MDI or a pump (A1c <7.5%). The study has a primary completion date in May 2015. ClinicalTrials.gov Identifier: NCT02232698.
• An Abbott representative wearing the FreeStyle Libre sensor on her arm demonstrated the system on-stage. The room seemed to gasp as she pressed a single button to turn the touchscreen reader on, held the reader over the sensor, and obtained a glucose result/real-time trend arrow/eight-hour history on the device’s screen. The scan and data transfer took less than one second (accompanied by an audible beep), and the entire demo took less than five seconds. The demo illustrated a few important points worth underscoring: (i) small form factor of the sensor patch, which is the size of a two Euro coin in circumference and about two Euro coins in thickness off the body; (ii) the overall simplicity of the system; and (iii) the speed of data transfer from the sensor to the reader.
  
  • The FreeStyle Libre’s circular sensor patch is worn on the back of the arm and measures 35 mm wide (about the size of a two-Euro coin). The subcutaneous sensor itself is just 5 mm deep x ½ mm wide, very small indeed (Medtronic Enlite is 9 mm in length; Dexcom’s G4 Platinum sensor is longer, though the exact dimensions are not listed in the user guide). The FreeStyle Libre sensor is fully disposable and contains no reusable parts; a small battery sits in the sensor patch to power the sensor’s near-field communication to the reader device (Medtronic and Dexcom employ reusable transmitter). Notably, it is a big advantage that FreeStyle Libre does not have interference with acetaminophen, though it is contraindicated for use with high doses of aspirin. The sensor patch can transmit data to the reader through clothing, though they must be within 1-4 cm [0.5-1.6 inches] of each other.
    • The sensor patch is worn for up to 14 days, is water resistant, and requires no fingerstick calibration. The sensor automatically measures, captures and stores readings day and night. After insertion, the sensor requires a very short one-hour warm-up, better than both Medtronic and Dexcom. Overall, the on-body form factor is a vast improvement over the first-generation FreeStyle Navigator, which was criticized for a bulkier on-body component relative to Medtronic and Dexcom’s offerings.
  • The touchscreen reader has a color screen and a built-in FreeStyle BGM. The product is identical in look and feel to the FreeStyle InsuLinx meter, with the exception of the color screen. It is made entirely of plastic on the outside and weighs next to nothing. Aside from a single button to turn the device on and return to the home screen, the reader is navigated via an icon-driven menu on the touchscreen. We found it highly intuitive to navigate through, though would note the touchscreen is not quite as responsive as a modern smartphone (it requires a harder press, generally speaking). The tradeoff is worth it for the lower price and Abbott’s goal of getting this technology to as many patients as possible (though we could imagine future-generation versions could have a nicer screen).
    • The reader menu has just three icons: check glucose, view history, and settings – all were self-explanatory, and the view history had a nice slew of on-device reports (time in target, a mini ambulatory glucose profile plot, and a chart showing the number of hypoglycemia episodes by time of day).
    • The reader has a micro-USB port to recharge the reader and connect to a Mac or PC for download. A three-hour charge lasts one week, assuming ten scans per day. The test strip port uses Freestyle Precision test strips, which offer both blood glucose and ketone testing.
  • FreeStyle Libre has a major focus on software, both on the device and in the download reports. Reports on the touchscreen reader can provide some high-level and useful analysis for a quick glance at glucose trends over time. The download software reports (Mac and PC) are intended to “show the complete glycemic picture” through the ambulatory glucose profile modal day plot (developed at IDC), as well as a very helpful traffic light system (red, yellow, green). The latter made data interpretation and problem diagnosis very easy, and we salute Abbott for working with Joslin’s Dr. Howard Wolpert on this front.
• Abbott’s initial focus with FreeStyle Libre is on type 1 and type 2 patients on MDI or pumps, though panelists had ranging views on the product’s target population. Dr. Irl Hirsch was most adamant on its potential use in type 2s on MDI, while other panelists mentioned “everybody,” “all patients on MDI,” hypoglycemia-prone patients, patients with out of control A1c’s, pregnant patients, inpatients, visually impaired patients, and pediatric patients. Abbott has certainly designed the system to appeal to a broad swath of patients, and we look forward to seeing what populations resonate most with the technology, especially if Abbott secures reimbursement.
• Mr. Watkin shared positive data from user experience studies of FreeStyle Libre. No study sizes were provided and there was no background on how these questions were asked. Still, the data pointed to encouraging potential for strong patient uptake, especially in those that have avoided current CGM due to comfort/wearability:
  
  • 93% agreed that FreeStyle Libre is comfortable to wear.
  • 83% agreed that it was painless to apply the sensor; 100% agreed that it was painless/almost painless to apply the sensor. Mr. Watkin emphasized this particular finding, as discomfort has historically been a barrier to CGM use. 
  • 96% agreed that using FreeStyle Libre is an easy and discreet way to check glucose.
• Mr. Watkin provided background on how Abbott has solved a big R&D challenge in CGM: factory calibration. First, he underscored how Abbott’s wired-enzyme technology enables stable sensor performance over 14 days. It is not dependent on oxygen to provide glucose readings, and the sensor operates at a very low electrical potential. Abbott’s chemistry uses an osmium mediator bound to glucose oxidase via a polymer network (the presentation included a nice animation on this). In addition, Abbott uses special equipment to manufacture FreeStyle Libre with minimal sensor-to-sensor variation. A lot-specific calibration factor is applied, which provides signal stability over 14 days (Hoss et al., JDST 2013).
• Factory calibration at this level of accuracy is a major R&D achievement that overcomes an important limitation of current CGM. In addition, it shifts the cost-effectiveness balance in favor of FreeStyle Libre, as virtually zero strips are required (Abbott recommends a confirmatory fingerstick in hypoglycemia or during times of rapid change).

-- by Varun Iyengar, Adam Brown, Hannah Martin, and Kelly Close