Google's Verily, Dexcom aim to launch mini glucose monitor in 2018, with next-gen by 2021

Continuous glucose monitor player Dexcom ($DXCM) and the med tech arm of Google parent company Alphabet ($GOOG), now known as Verily, are aiming for a 2018 launch of their first product together, a miniaturized continuous glucose monitor (CGM). That's slated to be followed up with a 2020 or 2021 launch of a disposable, inexpensive Band Aid-sized glucose monitor.

The pair partnered last August and, according to accounts from Dexcom, have been getting along famously as Verily brings to the table its tiny technology and grand ambitions, while Dexcom contributes its regulatory know-how and industry experience.

They're working together to sort out and develop what's next for diabetic monitoring. Likely, that will include extending the intensive CGM monitoring that now aims at Type 1 diabetics into insulin-using Type 2 diabetics and producing a glucose monitor that does not require daily finger stick calibration as most CGMs, including Dexcom's, still do today. The partners are already deep in talks with the FDA on how to accomplish these goals.

Dexcom CEO Kevin Sayer

"As far as contributing to our earnings or our sales, certainly nothing in 2016, and more than likely nothing in 2017. I think that really starts off in 2018 when we launch our first product," said Dexcom President and CEO Kevin Sayer of the partnership on a Feb. 23 earnings call.

He continued, "The milestones are really two big ones. There's our first-generation product, which we're working on, but our second-generation product--which we're also working on with Verily, and the second--generation product we've shown pictures of. That's turning the CGM transmitter literally into a Band-Aid-sized electronics configuration that a patient can peel off and throw away, that'd be very cost effective and that's the end game here. That's what we're shooting for every day because we know that's what patients want."

In the fourth quarter, Dexcom grew its R&D expense to $29 million as compared to $22 million a year earlier primarily because of its Verily partnership, the company said. Leerink analyst Danielle Antalffy sees a move into the Type 2 diabetic market as opening up a $6 billion-plus market opportunity in the long term.

Sayer said the next-gen systems will integrate more analytics that guide diabetics based on data that includes lifestyle information. When queried on developing a CGM for the Type 2 diabetes market, which obviously is much larger than DexCom's current Type 1 target, Sayer responded, "The one thing that we've learned about this market is it's not going to do us any good just to display a number and say, here you go; that we're going to have to really give patients the ability to learn from the system that we provide and provide interactive suggestions like, okay, you exercised today. Look, how much better you did."

He added, "That's the type of system interface that we're going to develop to address that market, again, which is different than what we have now. Just flashing a number on a screen isn't going to be enough, particularly for those that aren't using insulin. I would maintain that intensive insulin-using Type 2 patients can have the exact same experience as our Type 1 patients have today."

- here is the Feb. 23 Dexcom earnings transcript