The old Dexcom Share, with charging cradle.

DexCom has partnered with Google Life Sciences to develop the next generation of DexCom's CGM -- a device that is "the size of a dime", less expensive than current CGMs, and that the companies hope will eventually replace the fingerstick glucometer. The device is not just for people with Type 1 diabetes but also for those with Type 2 diabetes.

"Our objectives in this collaboration are very far reaching," DexCom CEO Kevin Sayer said on an investor call about the deal. "We intend to work together to develop simple, low-cost sensor systems integrated with advanced data analytics platforms to drive our entry into the Type 2 market, expand our penetration into the Type 1 market, and to accelerate the expansion of continuous glucose marketing into other markets such as the hospital and gestational diabetes."

DexCom EVP of Strategy and Product Development Steve Pacelli actually described the forthcoming generation CGM on an earnings call last week, but didn't mention that the devices would be developed in partnership with Google.

"Five plus years from now, our goal would be to have a sensor that would be something that’s miniaturized, that looks more like a bandage than a medical device, that’s fully disposable,” he said last week. “You get it to the point where you overcome basically all of the objections that a patient would have to wearing the device – it talks to your phone, it doesn’t have to be calibrated, you don’t take fingersticks anymore – there really isn’t a reason that you couldn’t get very significant penetration into the Type 1 market in the US."

As it has in the past, the Life Sciences group at Google will stick to its role as an R&D firm, letting DexCom take care of sales and distribution. In exchange, Dexcom will pay an initial upfront payment of $35 million in DexCom common stock, R&D milestone payments up to $65 million in DexCom's choice of cash or stock, and revenue-based royalties between 5 and 9 percent once the products are launched and have achieved a certain level of revenue.

Sayer said on the call that they expect the first product developed under the collaboration to launch in the next two to three years, with another generation in the next five years. In the meantime, DexCom's already announced pipeline for the next two years, including its Gen 5 and 6 transmitters, will continue as planned.

"What Google brings is they are very, very good at miniaturizing components and all these electronics, you know that's what they do," Sayer said on the call. "And they can do that much faster than we do. What they're bringing is that know-how, that technology, a whole bunch of R&D resources, and engineers to put behind this platform."

DexCom is racing to create a CGM product that's viable for the large unaddressed market of people with Type 2 diabetes for whom fingerstick glucometers are currently more feasible than CGM. These users wouldn't wear the device 24-7 necessarily, but might wear it for shorter bouts of time to assess the effectiveness of a therapy or learn to better manage their condition. According to DexCom, the deal does not include access to the Google contact lens, which is being developed in partnership with Novartis subsidiary Alcon. Pacelli was somewhat dismissive of that technology when MobiHealthNews interviewed him, calling it "a science project".

In related news, Google Life Sciences may soon be known as Alphabet Life Sciences, as a recent major restructuring at Google will take the company out of Google and place it under a new holding company called Alphabet. In fact, it was the first example Alphabet CEO Larry Page mentioned in a letter yesterday about the restructuring.

"This newer Google is a bit slimmed down, with the companies that are pretty far afield of our main internet products contained in Alphabet instead," he wrote. "What do we mean by far afield? Good examples are our health efforts: Life Sciences (that works on the glucose-sensing contact lens), and Calico (focused on longevity). Fundamentally, we believe this allows us more management scale, as we can run things independently that aren’t very related."