[00:00:00] Kevin: So welcome to What Matters Most, Sands Capital’s podcast series in which we explore some of the trends in businesses that are propelling global innovation and changing the way we live and work today and to the future.
Over the past several years, buried beneath Covid headlines, an epidemic has continued to rage. One that’s been identified and growing since 1994. That’s the epidemic of type one and type two diabetes or diabetes, generally. An estimated 28.7 million people in the US alone have diagnosed diabetes, at least 90% of whom are type two. Equally troubling is the fact that another 8.5 million people are estimated to have type two diabetes, but don’t know it yet. On this episode of What Matters Most, we’re talking to Sands Capital Senior Research Analyst, Jenny Goldsmith. In addition to her deep research in the field of genomics and medical devices, broadly, Jenny has been keeping an eye on advances in the treatment and management of diabetes for almost a decade now.
Today, we’ll discuss Sands Capital’s general approach to investing in medical devices. What makes any one of them a Sands Capital sort of company and why we think one company in particular, Dexcom is positioned well to transform the way we treat diabetes, not just in the US but across the globe. Dexcom is an interesting company because it is a business that is at the intersection of some of the most powerful trends in the healthcare industry.
An industry-wide shift toward personalized treatment as hospitals continue to face staffing shortages and pressures to cut costs, the development of miniaturized electronics and semiconductors and biosensors, and incorporating AI as a transformative driver in medicine, enabling earlier diagnosis, better treatment, and equipping patients with the data and information they need to take control of their disease. So, let’s dive in.
[00:01:51] Jenny, thanks for joining me today. Let’s start, if you don’t mind, with your personal journey. You’ve been at Sands Capital covering the healthcare industry for almost a decade now, but your experience in this space predates your time at Sands. Maybe give us a little bit of your background, before Sands and what you’ve been doing while you’ve been at Sands Capital.
Jenny: Yeah, so before I joined Sands, I graduated from University of Virginia in 2007. I then went to Credit Suisse and did investment banking for about four years there. While I was in doing investment banking there, I ended up working with a lot of private equity healthcare funds. And that helped drive my interest in healthcare. And so, from there, I thought I wanted to be a doctor. I went to Johns Hopkins, and I did a pre-med, post back program there. While I was there, I far too quickly realized I actually don’t want to be a doctor, but I want to do something where I can combine my interest in healthcare and business. And from there I happened to find Sands Capital, which was a lucky outcome for me, and I’ve been at Sands Capital ever since.
Kevin: Excellent, thanks.
[00:02:53] So before we dive in specifically on Dexcom or even diabetes in general let’s talk a little bit about Sands Capital’s approach to investing in medical devices broadly on the past couple of Podcasts, we’ve had conversations with some of your colleagues about semiconductors or about sensors used for industrial purposes. And I think one of the key themes there is just the rapid advance in the technology over the last decade or so. In particular the miniaturization of some of these sensors, or as we all well know the explosive growth, exponential growth of transistors, for example, on a semiconductor, does the medical device industry kind of follow that same pattern. Are you seeing that from your seat there?
Jenny: Yeah, we are seeing that. So, a medical device is really anything that goes on or in your body. And we’re seeing a renaissance in this industry where it’s picking up trends from the technology sector, like some of the ones you mentioned, like miniaturization, wearable sensors, AI, cloud computing. But it’s doing all this about a, a decade or so behind what we see in, you know, consumer products and some of the other areas of technology.
Part of the reason for that is that in healthcare there’s a lot of additional regulation and a lot of other considerations that that can slow down advances. But now we’re reaching that magical moment when the technology is, is mature enough, and it’s been adapted enough that now it’s really getting out into the hands of clinicians and patients and really changing the standard of care.
[00:04:26] Kevin: Excellent. Yeah, so let’s talk about continuous glucose monitoring generally as well. And I’m going to throw a little anecdote out there. About 30 years ago I used to work with a guy who had type one diabetes. Those of you who don’t know, and maybe Jenny, you can go to a little more detail on that. That’s insulin dependent diabetes, so that’s where, you know, blood glucose monitoring is extremely important in order to diagnose or to dose insulin. But anyway, when traveling with this guy, he carried around a box that was about the size of a small lunch pail from back in grade school days.
And he would open this, this box and in it was a piece of testing equipment that he would test his blood sugars with. And it required a significant amount of blood. And also took about five plus minutes or longer for a reading to come out and
Jenny: Oh wow.
Kevin: I think it was of questionable accuracy, but it was certainly better than just guessing what your blood sugar is like. So maybe talk to us about what you’ve seen in terms of the progression of glucose monitoring. Maybe even start with what glucose monitoring is and how diabetics need that to kind of manage the disease.
[00:05:33] Jenny: Yeah. So, it’s incredible the advances that have been made, just hearing that story that it used to take that long and take that much blood. One of the big advances that occurred over the last, I would say like 20 to 30 years was, using finger sticks where it was just a tiny little drop of blood. You prick your finger, and you can use that to get your blood glucose readings. And that, that was a great innovation at the time. And it matters because when you’re a diabetic especially a type one diabetic. You need to know your blood glucose levels because you need to know if you need to treat. Type one diabetics don’t have any control over their insulin levels. So, the only way that they could get insulin is by injecting it. So, this is a really important process to help them understand where their blood sugars are and how much they might need to treat with insulin or the other way, they might need to also consume sugars to help raise their blood sugars because their blood sugar levels could be highly variable.
So then along came the continuous glucose monitor in the late nineties, I’d say, and it really came into the market started getting used by patients in kind of the mid to late two thousands, and this changed the game. So, the way that finger sticks work is you prick your finger a few times a day, you get a number, and that is helpful. But continuous glucose monitoring gives you a number every one to five minutes.
And those measurements provide insight into which way you’re trending whether your blood sugars are going up or going down. And this is the key to what patients want to enable them to act before they go too high or too low.
[00:07:14] Kevin: Excellent. Before we dive specifically into Dexcom, maybe we can talk a little bit about how a CGM works. What is it for people that don’t know?
Jenny: Yeah, so a continuous glucose monitor is effectively a small sensor about the size of a quarter that you wear outside your body, usually on the back of your arm. And it has a tiny little wire about the width of a human hair that inserts into the arm and collects blood glucose levels from the interstitial fluid in your body. And it uses those levels to determine what your blood sugars are, and it’s also wrapped in a bunch of algorithms and software, and you get the data on your phone using an app or on your Apple Watch or on a receiver. And also, if you’re a parent of a child with diabetes, there’s a share feature where you can, as the parent also have that data, so it gives you some peace of mind. So, it’s really an advanced ecosystem of the sensor-based hardware that comes with easy to read and easy to use software for patients to be able to monitor and manage their diabetes. And it’s all about knowing where you’re trending which helps keep your blood sugars in a tighter range.
There’s actually been a movement given the advent of continuous glucose monitoring to a new standard of care called time and range, where now we can expect patients to meet certain time and range thresholds because the, the tighter. Range of blood sugars you have, the better your long-term health outcomes are.
[00:08:52] Kevin: Maybe go into that in a little more detail. When you say long-term outcomes, what are you talking about?
[00:08:57] Jenny: Yeah, so what we see with the usage of continuous glucose monitors like Dexcom’s CGM is on average patients experience a one-point reduction in A1C. And A1C is an average measurement of your blood sugars over the last month or so. And a one-point reduction in A1C is associated with significant improvement in long-term outcomes. This includes roughly a 34, 30 to 40% decrease in complications related to cardiovascular disease, renal disease, eye disease, nerve disease, all the things we, we see associated with diabetes. There also is around a 20% reduction in diabetes related deaths and over a 10% reduction in diabetes related costs. So being able to get your blood sugars into a tighter time and range is associated with those significant improvements in long-term outcomes.
[00:09:52] Kevin: So I think the interesting stat there is that over 10% reduction in costs, I think you’re talking about the total long-term costs of dealing with this disease over the lifetime of the patient – correct me if I’m wrong, but maybe tie that into how the reimbursement industry that Medicare, Medicaid, and other insurance industry is, is looking at that reduction.
Jenny: Yeah, so this has actually been one of the biggest challenges with Dexcom. So there are over 500 million people in the world that have diabetes, but there are only about 2 million users of Dexcom CGM today. And that begs the question, you know, why is that? And the reason for that is because, these devices are really expensive and at about $2,000 a year, most people can’t afford to pay for it. So what they need to pay for it is the payers and, and governments globally. And payers and governments don’t like to pay for things unless they know they’re getting, cost savings or clinical effectiveness. And it takes years, decades to build the data to prove that.
But we’ve reached a point where we’re starting to see that being proven. There’s been about a 3x in increase in reimbursement for Dexcom over the last three years. And over the next five years, we expect another 3x in reimbursement. And the reason for that is, because we’re seeing significant cost savings proven in the data. So, for instance, there was a, a study done by Intermountain Healthcare, which is one of the large hospital providers. And that study showed that despite spending around $2,000 on a CGM, per year, the cost savings that they got from these patients was about $5,000 a year, so a net savings of about $3,000 a year.
That is rare to see in medicine where you actually get a net savings in addition to clinical benefits. And what’s driving that is that there’s been a large reduction in ER visits and hospital visits, which are pretty costly. They’re related to diabetes and a reduction in expensive prescription drug usage. So these are some really big dents that we’re making in the cost curve of diabetes with this technology. And that is encouraging payers globally to pay for it more.
So, over the next five years, we expect that there will be about 3x increase in reimbursement, probably getting to around 40 million covered lives globally. And that gives a really long runway for growth for from Dexcom’s current 2 million user base.
[00:12:23] Kevin: That’s great. So you mentioned that there are over 500 million people or so in the world with diabetes. And that you expect a three x increase in covered lives globally at around 40 million plus. So it’s a large addressable market. That would be an understatement to say it’s a very large market. There are clearly a lot of different companies focused on this disease. And then a few companies more specifically focused on continuous glucose monitoring.
What stands out about Dexcom in particular to you? And maybe give us some insight into how you think generally about medical device companies that meet Sands criteria versus some of the competitors?
[00:13:04] Jenny: Right now this is mostly a duopoly market. So we really think about this being a race between Dexcom today. So the main difference between the businesses is that Dexcom is a focused medical device company. All they do is make continuous glucose monitors. That’s it.
Abbott, on the other hand, is one of the largest diversified medical device conglomerates. So they make continuous glucose monitors but they also make other products and diabetes. They have a huge cardiology line of products that they make. They focus on diagnostics, so they have a wide breadth of things that they do, but they can’t bring the focus that a business like Dexcom can. so where we see that manifest is that Dexcom has maintained a 20 plus year lead of the industry leading accuracy for these sensors. They have industry leading net promoter scores and they have industry leading retention rates. So we view Dexcom very much as the technology consumer experience leader, and that’s born out in the data.
So our view is that both Dexcom and Abbott have good products, but Dexcom we think has the, lead and will continue to, innovate very fast, given that this is the only thing that they do. And they’re focused on all their innovation, they’re already focused on the next two generations of Dexcom sensors and technology. They’re focused on building out their software platform and we expect them to continue to go as fast as anyone else could possibly go.
[00:14:41] Kevin: One of the things that people often point out is that hardware is important, but as important in this case is the software. And you mentioned the integration with certain apps and other communication devices like a phone or a watch. Talk a little bit more about the software ecosystem around the Dexcom CGM.
Jenny: Yeah, so Dexcom from day one has been built knowing that software is eventually gonna matter more than the hardware piece of this. So don’t get me wrong, the first 20 years have been about getting the hardware right and getting these sensors accurate enough that they’re now at the point of being almost as accurate as a finger stick. But now the next phase of innovation is really gonna be in the software layer.
So, there’s been evidence already that Dexcom has a pretty wide leadership here. So they were the first company to integrate with insulin pumps, and they did this years before Abbott did. Abbott actually just got the integration earlier this year. And the reason they were able to do that was because of the accuracy of not only their sensor, but the algorithms that they have. So they were able to make sure there’s a lot of drugs like Tylenol and Vitamin C and other things that interfere with the algorithms. And they were able to program all of that out pretty early on, such that you can have accurate enough readings to dose insulin off of for patients, which, you know, insulin’s a lifesaving drug, but it also could be a life-threatening drug if you get the wrong dosage.
So that’s some early evidence that they’re further ahead on the algorithm side. On the software side, they’ve been the first to have predictive algorithms. So they will tell you 15 to 20 minutes before you’re gonna go too low or too high. Whereas Abbott’s sensor basically tells you where you’re at right now. So they’ve enabled predictive capabilities that are really helpful for patients to be able to stay tightly in time and range and not waiver too far out.
[00:16:44] Kevin: Yeah, great. That’s helpful. I read somewhere too, and I don’t know if you want to go into detail on this, but not only are these algorithms predictive on a short term you know, 20-to-30-minute basis, but it also gives you a pattern of glucose readings throughout the day. So, you look at individual day parts, I know certain people see a spike in blood sugar in some cases early in the morning. And what I understand is that the CGM can help kind of help you adjust your, your what is called the basal rate of insulin that you’re given. Something you really couldn’t do with a finger stick ‘cause you’re not waking up every night throughout the night poking yourself in the finger every five minutes. Am I on the right track there? Is that something that the CGM is helpful with?
[00:17:25] Jenny: Yeah, it’s, and that’s now integrated into the Dexcom app. So they have this very easy to read app that just shows your blood sugar trends. And they have, it’s a little dot plot that shows where they’ve been over the last, you know, three to 24 hours. And then also in the app, they’ll show you your time and range numbers. You know, you were 78% of the time at goal. You know, some percent of the time above and some percent of the time below, over many days. So you can start to get an understanding of what you look like as asa patient. Because the reality is, is every patient’s diabetes is different.
Different factors cause different fluctuations, and that’s why the old, medical advice of, you know, just work out more and, and, you know, eat a balanced diet doesn’t actually work because people don’t know what exactly matters for them. So this is starting to give real insight into that and empowering patients to take action to help improve their diabetes in ways that they can see, live is helping.
And the other thing is, this is just the beginning for the software. So we’ve talked to Dexcom and they have plans to really build out the robustness of their software. Today, it’s the same software experience for every diabetic who uses it. Over time, they expect to tailor the software to all the different types of, of diabetics. So we talked about type one diabetics – they’re really concerned about dosing insulin, so that will be a preeminent feature in the app. But for some of the type two diabetics that don’t use insulin.
That doesn’t matter as much for them. So you wanna tailor an app experience that’s more about understanding how exercise or different food impacts them. And one of the things that Dexcom has done, and they’re the first to do this, is enable an API in their software so that you can plug in all these different data sources that diabetics use. Like they use, you know, fitness monitoring they use different, food apps and other different diabetes apps, and this way you could bring all that data together and empower a better experience for those patients over time.
[00:19:32] Kevin: It’s interesting talking about how food or exercise impacts your blood sugar. I think people might be interested in hearing your take on the non-diabetes marketplace. Is it big? Does it matter? You know, you hear a lot of endurance athletes are now wearing CGMs in fact, you know, type CGM into Google, and you’re gonna get a lot of advertisements for companies that are trying to market to the athletic world. Is that a thing? Does that matter?
Jenny: Yeah. So, there are a few companies out there that you can get a CGM and you see people wearing it at the gym, like you mentioned. I’ve definitely seen that. It makes a lot of sense. So, if you think about it, we take some vital signs. You know, we could take our pulse, we could take our blood pressure. We’re counting steps often with different fitness monitors. But one of the most important vital signs that we don’t have access to today is our blood sugar levels and even non-diabetics. We fluctuate, you know, if we eat a piece of cake, we should expect our blood sugar numbers to go up. And, it’s really helpful for, you know, given the state of the world we’re at today with the diabetes epidemic, it’d be really helpful, for average people to be able to see and understand what behaviors impact their blood sugars and what might actually put them at risk for developing pre-diabetes or diabetes further down the road.
So, in a perfect world, it’d be great for all of us to have this information. I know I would want it, I would, I would certainly want to see these numbers and, and know what, what behaviors are. Good and helpful for me and not especially given the long-term outcomes that we talked about of, you know, developing diabetes comes with some very serious long-term consequences. So I think there is a point in time when Dexcom and others eventually develop an over the counter product that’s more simplified and stripped down, but can give you basic reading into your blood glucose levels. And I think ideally in a world where maybe you can get product like that for a few hundred dollars a year.
Still certainly expensive, but people pay that for, you know, the fitness trackers and tracking steps I don’t think has been associated nearly as much with improving your long-term outcomes as tracking blood sugars. So I think we get there at some point, but it might still be some time we’re still so early in penetrating the diabetes market where there’s clearly a need for patients to be on these products.
[00:21:59] Kevin: That actually reminds me, let’s talk about future competition. You know when Steve Jobs was diagnosed with pancreatic cancer, a priority for Apple became blood glucose monitoring, and they tried to integrate that into the Apple Watch, which would’ve been not, I guess, subcutaneous, but taking readings off of the surface of your skin and then Google and you can, correct me if I’m wrong. I believe Google developed a contact lens that was supposed to read glucose levels, I guess in the fluid around the eye. Are those, are those potential competitors, do you think is that kind of science fiction at this point? Or how close are we to seeing a wearable that isn’t, you know, probably more targeted to those that have a bit of a needle phobia?
[00:22:42] Jenny: Yeah. Yeah. So, it’s funny, I’ve been attending a diabetes technology summit conference for, I don’t know, seven or eight years now, where I’ve seen new technology like this pop up every time. I’ve probably at this point seen tens of players that have promised , the hope of a non-invasive technology that’s going to come to market and, and displace, you know, the needing the, the hair-like needle to go in the arm. And unfortunately none of it has worked. Because what happens is you take these from a clean lab environment and a bench top environment, and you actually try to put a product on a patient, and you experience all the dramatic variability that, you know Dexcom originally experienced 20 plus years ago.
But there’s a lot more variability on top of your skin than within your skin, and it’s really hard to sort out some of that noise. And then on top of that, even if you can start to sort through some of that noise and get a little bit better accuracy one of the biggest challenges is that, you’ve got to miniaturize it then. So Apple made some headlines a few months ago when they talked about having a prototype for noninvasive glucose monitoring. That’s actually a bench top equipment. So we’re thinking like a printer sized object is sitting on a desk somewhere and now able to, with decent accuracy use spectroscopy to read glucose levels in the body, which that is a great advancement. But nobody’s going to choose to, you know, go hook themselves up to a, a, a printer sitting at a desk over wearing, you know, something the size of a quarter on their arm. And Apple’s big goal that they stated is to miniaturize it to something the size of an iPhone.
And I think that, when you think about it at this point, when you put these sensors in the applicators have become so easy to use that for most patients, they don’t even feel the hair like needle go into their arm anymore. So, Apple’s product of having a giant iPhone strapped to your arm trying to get these readings versus, again, something that’s a quarter sized. I just don’t think many patients are going to prefer that for just the simple reason that they don’t want that little tiny needle going into their arm. So I think the conversation will likely move from noninvasive versus invasive. To, can we get the reading? Instead of having to wear this quarters size button on the arm, can we get the reading to actually maybe just go straight to a watch? Do we actually have to have the transmitter on the arm? I think that’s the type of hardware innovation that could be interesting, but I think that the whole concept of needing something noninvasive is probably more behind us than we realize.
Kevin: Excellent. Yeah and I think people who wear contacts in Google’s case would argue that a contact is not non-invasive.
Jenny: Right. And actually in the Google example, I forgot to address that one. They actually shut down that program because glucose levels in, in the eye are not accurate readings of glucose levels in the body, they discovered. So what was a, it’s certainly a innovative idea and it was an interesting approach. It, it just unfortunately doesn’t work.
[00:25:59] Kevin: Let’s shift back to Dexcom then. What’s next for Dexcom? You know, you talked about miniaturization or changing the form factor. Maybe take us down the road a little bit on what we can expect from the company in the next few years.
Jenny: Yeah, so I think the next few years for Dexcom are all about launching their newly released G7 product that just got approved in Europe and the US over the last few months here. And they’re early on that launch and this is a totally new product. It basically transforms the hardware they had before and the software they had before and sets them up for more room to innovate and iterate on top of this product going forward. It’s 60% smaller. It’s more accurate. It has a faster warmup time, which actually is a big deal to diabetics to not have a gap in numbers. And it has the analytics driven app where they’re getting a lot more robust of a data experience than they had before. So I think for Dexcom, it’s going to be all about, watching this G7 launch in addition to the G7 launch, they’ve also launched a new lower priced more stripped down CGM called Dexcom One, and that’s been launched internationally. And that’s a big deal for Dexcom because when Abbott entered this market, one of the smartest things they did was realize that the international opportunity was dramatically underpenetrated.
And they went out with their lower pricing, and they got a lot of access and reimbursement. And at this point have over 80% share internationally because they basically seeded that market. Now, Dexcom has caught on. They’ve figured out how to lower pricing and they’ve dramatically increased reimbursement and access over the last few years. And what we’ve seen is Dexcom slowly clawing back share in the international markets. So, They were at 10% share two years ago. Now they’re about 15% share. And given this new lower price Dexcom one, we think that’s a game changer for them in international markets and should help them get up to closer to even share with Abbott.
So I think that international expansion will be another key component of their growth over the coming years and then within the US the other big component of growth is that Dexcom has finally gotten reimbursement and access in the type two market. So up until now, Dexcom’s primarily been used by type one patients in the US. But recently, Medicare expanded reimbursement for CGM into the basal using population of type two diabetics. And these are patients that are using a light amount of insulin, we can say but it’s a huge patient population and it roughly doubles the size of Dexcom’s addressable market in the US.
So that’s another area of growth that I think that they’re really going to be, taking their new G7 product into and expanding. so all that’s going to be happening on the business side of things. And then behind that, we still expect Dexcom to have a lot of room for continued innovation. So they’ve already told us that they’re already working on two generations ahead of sensors that we don’t know what those are, but we can imagine all the exciting things that they could be bringing out. They’ve told us about the software changes and improvements they’re expecting to make. So there’s a lot of additional innovation that should be able to propel growth for years three through five plus from now.
[00:29:28] Kevin: So often innovation is associated with profitless growth, you know, the, the more complex the device, the more money you invest in R&D, the weaker your margins become over time. Talk about the impact that these innovations have on Dexcom’s margins.
[00:29:48] Jenny: Yeah, so this is a pretty exciting part of the Dexcom story that I think often goes under appreciated. We actually expect Dexcom to become one of the most profitable businesses in large cap healthcare over time. And the way that we expect them to get there is first we expect there to be a pretty strong improvement in the gross margin profile.
The way that’s going to happen is right now you wear a Dexcom sensor for 10 days. Dexcom is working on in increasing that wear time to 15 days, and they’re hoping to have that ready by 2025. What this does is the way you’re reimbursed for wearing a CGM is by day. So effectively, if you go from 10 to 15-day wear, that’s about 50% more revenue per unit, which is a massive uptick in gross margin potential.
Now, all that’s not going to drop straight to gross margin because Dexcom’s going to use some of that to give back some price to negotiate with payers and governments globally probably to fund a lower tier CGM product. And who knows, maybe even an over-the-counter product could be funded with this improvement in gross margin, but it should be enough to take gross margins from their current low to mid-sixties percent to around the 70% range.
So that’s a nice big improvement we can see in the business model coming. The other big improvement is that the cost to serve. The new, populations of diabetes patients that they’re going into is much lower. So a type one patient needs a lot of care, it needs a lot of servicing. And those patients rely on their CGM to be the brains for their insulin pumps. there’s just a lot more need in that patient base.
The type two patient is mostly using their CGM to get informed about how their behaviors impact their blood glucose levels. So there’s not as much outreach and call center activity for the type two patient. The other big thing that has happened, is that the channels through which Dexcom sells its product have changed.
So it used to sell its product through what was called the durable Medical Equipment channel. And that channel is a pretty expensive channel with, a lot of different distributors and a lot of layers, a lot of paperwork required to go through. They’ve shifted now to the pharmacy over the last several years and in the pharmacy channel, you know, that’s as simple as going to CVS and picking up your prescription and negotiating with the, the pharmacy payers on an annual basis. And that is a much lower cost channel for Dexcom.
So, putting those two factors together, the lower cost to serve and going into the lower cost pharmacy channel, Dexcom has experienced, they’ve said roughly a 30% decrease in OPEX spend required to serve the business. So, all of this, the gross margin improvements from the hardware improvements and then the OPEX improvements, we expect Dexcom to roughly double its operating margin profile over the next five years.
[00:32:46] Kevin: So, I said at the beginning of, in the introduction that diabetes has been identified as an epidemic actually was identified in 1994 as an epidemic. Talk to us about why that is. Is it getting better? Are we heading in the right direction in terms of turning the epidemic into, you know, endemic? Or are we headed in the other direction?
Jenny: Yeah, unfortunately, we, we are heading in the wrong direction. At this point there are more than 500 million diabetics globally. It was originally predicted that around today there would be about 300 million diabetics globally, so we’re almost doubling the number that was expected. So, prevalence is going up much higher than expected. The other issue is that diabetics today, only about 50% of them are in a controlled safe blood sugar range, and that’s actually down from 57% a decade ago.
So despite a lot of change and improvement and awareness of this issue, we haven’t actually seen that bore out in the numbers. But what we’re optimistic about is that there is real technological change coming. and changes and improvements in some of the other drugs and diabetes related drugs and devices that should help bend this epidemic and bend the curve.
And the CGM is one of those, so what the CGM enables is that previously the idea was, you know, try and work out more, exercise and eat better, and your diabetes will improve. But we’ve learned that that’s not really the case, that’s not what happens. Instead, diabetes care needs to be personalized to the individual’s biology and Dexcom’s continuous glucose monitor is a technology that provides that. It provides insight into what actually is happening within a person’s body and empowers them to act against their disease. And the exciting thing that we’re seeing with that is that regardless of your education status, your age, or your diabetes literacy, if you wear a CGM, all patients are seeing roughly the same A1C improvement, which is their blood sugar improvement over the last month.
Kevin: That’s great. So this has been a fascinating conversation. It’s a very interesting technology that’s clearly evolving to the benefit of this massive patient population. Maybe kind of wrap it all up for us either specifically on the CGM space or more generally on the medical device space.
[00:35:17] Jenny: Yeah, so I, I think the best way to wrap it up is that, you know, it, what we’re trying to do here at Sands on the healthcare team is invest in businesses that are changing the standard of care. And what we’re seeing is that the digitalization of devices is really transforming medicine. It’s enabling earlier diagnosis and better treatment of disease, like we’ve talked about today with the continuous glucose monitors.
It’s empowering patients to take action, take control of their disease. It’s empowering doctors to feel like they’re helping more patients and expanding access to more patients. And it’s empowering payers to actually make a, a dent in some really expensive cost curves. So we’re seeing this really help the entire ecosystem that tries to improve health for patients broadly. So, thanks to all these innovations that are happening that have come from the technology sector, they’re now getting embraced by the medical sector.
We’re starting to see a lot of change and paradigm shifts in in care and you know, Dexcom’s among one of the pioneers in digital devices that’s changing the standard of care and diabetes. And we expect to see many more. And we’ve invested in some of those other companies and are excited to see what other ones will come up and we’ll have the opportunity to invest in it over the coming years.
[00:36:35] Kevin: Yeah, that’s great. I mean, healthcare seems to continually be fertile ground for finding innovation driven growth and. More importantly to Sands Capital companies that will be key beneficiaries of that growth or drivers of that growth.
So thank you for your comments today. Really, really interesting. And look forward to seeing what happens with Dexcom over the next few years.
Jenny: Me too.
Disclosures:
The views expressed are the opinion of Sands Capital and are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. The views expressed are current as of June 1, 2023, and are subject to change. This material may contain forward-looking statements, which are subject to uncertainties outside of Sands Capital’s control. The securities identified do not represent all of the securities purchased or recommended for advisory clients. There is no assurance that any securities discussed will remain in the portfolio. You should not assume that any investment is or will be profitable. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. For more information, including a full list of portfolio holdings, please visit our website at www.sandscapital.com.
As of August 30, 2023, Dexcom was held in the Select Growth, Global Growth and Global Shariah strategies. Abbot was not held in any Sands Capital strategy and is referenced for illustrative purposes only.
