Dexcom is partnering with Google's life sciences team to develop and commercialize next-gen continuous glucose monitoring products that are smaller, cheaper, lighter and disposable.

Arundhati Parmar

On Tuesday, continuous glucose monitoring company Dexcom announced that it is partnering with the life sciences team at Google to develop next-generation CGM products that will be smaller, and cheaper than current products the San Diego company (and presumably its competitors) make for diabetes patients.

"These new products will incorporate Google's miniaturized electronics platforms with Dexcom's best-in-class sensor technology," declared Kevin Sayer, in a hastily convened conference call Tuesday. 

What the collaboration could bring is allow Dexcom to "further penetrate the Type 1 [diabetes] patient population and more broadly drive adoption in the much-larger Type 2 patient population," wrote Danielle Antalffy, an analyst with healthcare investment bank Leerink Partners, in a research note following the conference call.

The size of these newer lighter, cheaper and disposable CGM devices will be about the size of a bandage, Sayer stated. He expects the first products developed jointly with Google's life sciences team to hit the market in the next two to three years.

To allay any fears that current employees may harbor, Sayer was quick to note that the partnership with Google will not affect the products currently being developed and commercialized - the Dexcom Gen 5 CGM, which one analyst expects will win FDA approval next year, the Gen 6 product and other projects in Dexcom's pipeline.

Through an exclusive license Dexcom gets access to certain aspects of Google's intellectual property and the diabetes care company also retains  the sales and distribution rights for the products.

But that comes at a price. 

Dexcom is shelling out a $35 million upfront payment in Dexcom stock and there will be subsequent payments of up to $65 million based on the achievement of both development and regulatory milestones. That money is to be paid either in cash or in Dexcom stock, said Steven Paceli, Dexcom's executive vice president of strategy and corporate development, on the call. 

Aside from that, Dexcom will also pay royalties to Google if sales of these newer products are more tha $750 million annually. Initially the royalties will start in the high single digits and thereby declining to the mid-single-digits based on aggregate product sales.

The collaboration is not just tied to the transmitter technology that Google has that Dexcom can leverage in a next-gen sensor. Analytics is also key. In a response to a question about how analytics will figure in the partnership, Sayer acknowledged that analytics has been an area where the company "could use some help" and that Dexcomy has access to millions of data points from Dexcom's Share bluetooth communication platform but hasn't run much analytics on those.

"We view this as a great opportunity to develop some platforms and really know what goes on in the lives of our patients, and ... make the experience much more rich and better for our patients," Sayer says.