Making Diabetes More Manageable
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Later this year, it's expected that an insulin pump can be fully controlled by a smartphone without a separate device being needed, which previously patients thought was science fiction.  Tom DeBourcy, health care analyst for the Alger small cap portfolios, discusses how the better health care companies are innovating to significantly improve diabetes devices and monitoring capabilities​.  

ALEX BERNSTEIN:​ Hello. I’m Alex Bernstein and you’re listening to The Alger Podcast: Investing in Growth and Change. According to the Center for Disease Control, as of 2017, more than 30 million people–or about 9.4% of the entire U.S. population–have some form of diabetes and those numbers continue to rise.  The cost and effort of managing the disease on a daily basis can be financially and emotionally exhausting for individuals and their family members.
At Alger, we’ve seen the impact of rapid innovation across every industry and diabetes management is no exception.  Speaking with me today about the current state of diabetes care is Tom DeBourcy, Vice President and Analyst covering the health care industry for our small cap strategy team, headed up by Amy Zhang.  Tom, thanks for joining me.
TOM DEBOURCY: Thanks, Alex.

ALEX: Tom, you’ve been with Alger since 2015 and investing in health care for more than 14 years.  Can you just start by giving us an overview on the biggest innovations you’re seeing?
TOM: In the U.S. the diabetes market is large.  There’s about 1.5 to 1.7 million people in the U.S. with type 1 diabetes who are completely dependent on insulin injections.  Their pancreas doesn’t produce any, and then there’s somewhere between 25 to 30 million people with type II diabetes, where a patient has become resistant to insulin.  

The newer technology is continuous glucose monitoring, or CGM, which are sensors that a person can wear on their body and measure on a real-time basis their glucose levels.  

The alternative to that, and what people are doing who currently don’t use a CGM monitor is basically pricking their finger with a lancet, taking a blood sample and putting it in a blood glucose machine to get a single point-in-time reading.  Your blood glucose levels go through significant excursions throughout the day as you eat.  So, being able to monitor what is actually going on with your blood glucose levels is very important.  Having a lot more knowledge about what’s actually going on with your glucose levels is a significant enhancement and improvement for patients.  

I think the most significant innovation has been in continuous glucose monitoring overall.  The initial versions of CGM sensors weren’t very accurate.  And the poor accuracy limited the uptake, but within the last four or five years, the technology has gotten to the point that it’s highly reliable within 10% variation versus a blood glucose meter, and so the FDA has actually deemed that a patient can dose based on their CGM reading.  

The CGM is taking a measurement every five minutes, so it’s telling you also your trend line.  Is your blood glucose level going up, or is it going down?  That provides a very important second piece of information in order to tell the patient what they need to do.  

ALEX: Can you tell me about some of the providers that you’re invested in? 

TOM: We’re invested in one of the standalone CGM companies, and we own two of the insulin pump companies.  One of them is on their second generation of a closed loop algorithm system, and the other company has an insulin pump offering that requires no tubes.  And they expect to introduce their closed loop system by the end of this year.  And so there’s more and more innovation coming to market very soon too. 

ALEX: Tom, earlier, you described to me some of the incredible burdens that diabetes sufferers have in managing the disease on a daily basis.  Can you elaborate on that?  I mean, there are some people who find themselves checking their readings constantly?

TOM: Yes.  For someone who is insulin-dependent, there’s a significant burden placed on the patient on a daily basis. And so they wake up, they need to test their glucose levels.  If they plan to eat something, they need to test their glucose levels.  And then there may be certain times of the day if they’re going to exercise.  Also, that can cause low blood glucose.  So that was actually related to one patient.  For that patient, it was 147 times in a given day that they found themselves just even thinking about their diabetes in some way.  If you think about that versus a normal person that doesn’t have to think about it at all, it’s an incredible burden for someone to bear.  You don’t get any days off, and so it’s really significant.

ALEX: What’s one of the biggest advances you’re seeing with CGM at the companies you’re reviewing? 

TOM: Another key factor has been alarms and alerts.  And so, if a patient, their blood glucose level is dropping and it appears to be dropping very significantly, the CGM system has audible alarms to alert the patient and get their attention, and not all the systems have that capability. 

ALEX: And I’m guessing they now have the technology so that patients or their families can monitor from a distance? 

TOM: Yes, yes.  That’s particularly significant because whether it’s a child or an adult actually, as a patient goes into low blood glucose or hypoglycemia, their normal brain activity, their ability to act rationally is impaired, and so the ability of a parent to know what is going on with their child or the patient’s blood glucose is very significant.  

ALEX: You had an interesting example.  A parent monitoring their child away at college?  

TOM: Actually, the example was a gentleman in his 40s that had come home from work one day in the summer.  It was hot, and he mowed his lawn, and he obviously sweated.  He took an hour or two and basically lay down in his bed and was resting, and he fell into a diabetic coma.  

Actually, his wife at the time didn’t get alerted. But you can have up to five people following you.  And so his brother did get alerted.  The guy was living in Chicago, and his brother was living in Denver, and so his brother in Denver called the paramedics that resuscitated him and saved his life.  So, it really is a game-changing technology for these people.

ALEX: Tom, you also mentioned that one of the most significant improvements from the past few years is that some newer CGM sensors require no calibration.  That is, the historical necessity of constantly pricking your finger and putting your blood into a blood glucose meter.  And now, that’s no longer required.  That seems like an incredible change.

TOM: Patients that have had diabetes for 50 years, all their fingers have a lot of scarring on them just because you could be doing blood measurements 8-15 times a day which is incredibly painful.  A finger stick.  And so the ability to completely take that away for a lot of patients is really game-changing too.  

If you think about ten times a day and 365 days a year times 20, 30 years.  That’s a lot of finger sticks. 

ALEX: And are we seeing this technology tie into smart phones and smart watches now?

TOM: Yes.  Currently the systems are still run over Bluetooth and have standalone devices to monitor it that aren’t connected to the Internet.  For the last several years the FDA first had to develop its own criteria for what was needed to demonstrate cyber security in that it was secure enough that it couldn’t be hacked, because if you deliver too much insulin, you can kill the patient.  And so the FDA had high hurdles starting this year.  

Later this year it’s expected that an insulin pump can fully be controlled by a smart phone without a separate device being needed.  The device probably still will be there as a backup, but we’re getting there and we’re very close to actually eliminating that separate controller that has been needed.  And the information from both the insulin pump and the CGM can be displayed on smart watches and that kind of thing.  But you will be able to dose your insulin from a smart phone in the not-so-distant future.  Basically in the next 12 months, which previously patients thought was science fiction, honestly. 

ALEX: Tom, I just want to switch over to your experience of doing this kind of research at Alger.  As I mentioned, you work with Amy Zhang, specifically in the small cap space.  Can you talk about working with that pool of companies?

TOM: Yes, definitely.  One thing that is unique about our strategy is that we look at a company based on its revenue size and not just based on its market cap.  We typically target companies that have less than $250 million in revenue, and so we want to uncover really outstanding small companies that can become outstanding large companies over time with the ability to scale.  The ability of a smaller revenue company to double its revenue.  

I cover about 25 owned companies, and I’m separately monitoring about probably 70 to 75 additional companies.  Sometimes a company doesn’t fit what we’re looking for but has specific read-throughs to the companies that we’re invested in, or there are specific things that we’re looking for clarity on or development of their business over time in order to invest. And so we have a large pipeline of additional stocks that we look at and that we continue to monitor as potential candidates for the portfolio.  

ALEX: And what do you think differentiates Alger in terms of managing these kind of investments?

TOM: I think what really differentiates Alger is the bottom-up stock analysis that we do.  Obviously, Alger has a growth orientation focused on either Positive Dynamic Change or lifecycle change in a business.  I think really the magic is in the process that we implement around growth stocks, and so we have a large research team that is dedicated, industry-specific, doing intense due diligence on our companies, original research in the health care space.  That could be a lot of different types of doctors or other experts or consultants, former sales reps, other consultants for other sectors as well, as well as having frequent interaction with management teams.  

We think it’s very important to also know the management well.  And so we like to say that we want to know our companies better than anyone or at least as good as anyone, and so I think there’s a lot of our companies, if not a majority of our companies in our portfolio, that I feel like I could enter their brain and presented with a specific situation, know what decision they would make.  

ALEX: Tom, thanks so much for speaking with me today.

TOM: Thanks, Alex.  Great speaking with you.

ALEX: And thank you for listening.  For more information on Alger small caps and health care investing, please visit www.alger.com. 
For more information on Alger and Weatherbie focused portfolios, please visit www.alger.com​.  




​​Source:  Center for Disease Control, National Diabetes Statistics Report, 2017

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of January 2020. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security, or any funds managed by Alger. 
  
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