A sign of the times

A sign of the times

Lost in all the holiday cheer was news that privately held Polymer Technology Systems purchased the Metrika business from Bayer. According to a press release issued on December 23rd, “Polymer Technology Systems, Inc. (PTS), the U.S.-based manufacturer of the CardioChek family of point-of-care diagnostic products, announced today that it has acquired the A1CNow® family of products from Bayer Diabetes Care.  The A1CNow+® Multi-test A1C System and A1CNow® SELFCHECK At-Home A1C System are important testing devices for readily monitoring A1C levels.  The tests provide healthcare providers and people with diabetes with an indicator of a patient’s average blood glucose control over approximately the past 3 months.”

Although this may not seem like big news Diabetic Investor sees this as part of emerging trend in diabetes management.  As everyone knows the conventional glucose monitoring market is imploding. Everyone also knows that while it would be nice if patients with diabetes tested their glucose levels on a regular basis they don’t.  The facts are that the majority of patients with diabetes regardless of their therapy regimen fail to monitor their glucose levels.

This is why Diabetic Investor was so high on Metrika when they first came to market years ago.  While the test was not perfect it was accurate and relatively simple to use. Most of all patients understood what the test result meant which has always been the downfall of daily glucose monitoring. HbA1C is considered the gold standard for measuring diabetes management, a reading of 7 or below is good, above 7 not so good. This is the beauty of the test patients understood what to do with the information the test delivered.

When Bayer initially acquired Metrika, Diabetic Investor hoped that with their resources and deep diabetes experience Bayer would expand Metrika’s presence and use the A1CNow as a stepping stone to greater daily glucose monitoring. We reasoned that while A1C is valuable information, even the most diligent patients tests their A1C quarterly. Simply put Bayer could not recoup their investment in Metrika without using the company to help their bread and butter business of selling test strips.  Sadly this was not the case as Bayer quite frankly just didn’t know what to do with the test and failed to develop a cohesive, well thought out strategy. The question is will Polymer be able to do what Bayer couldn’t.

Diabetic Investor has long believed that at some point in the future patients with diabetes would be prescribed diabetes management systems. Systems which would include everything the patient needs to manage their diabetes both drugs and devices, all in one nice neat package. At one point Diabetic Investor felt that Sanofi (NYSE:SNY) would be the first major company to develop such a system but just as Bayer failed to develop the Metrika business, Sanofi failed to develop their device unit; as we have noted with regularity when it comes to Sanofi and diabetes it’s all Lantus and nothing else.

To Diabetic Investor the Polymer purchase indicates that the system based approach to diabetes is alive but taking a slightly different path than we originally anticipated. Rather than everything in the system, drugs and devices, it looks like there will be two systems – one for drugs, the other for devices. The device system will include a battery of point of care tests and not just a conventional glucose monitor. The technology already exists for the results of these tests to be simply transmitted to the patient’s physician and/or educator who in turn can then help the patient better manage their diabetes.  For any company with a device system the money isn’t made on any one piece of the system rather on the continual sale of system refills. This isn’t unlike what Lilly (NYSE:LLY) is now doing on the drug side where the company is willing to sacrifice margin on individual drugs in order to sell their entire portfolio of diabetes drugs.

The driving force behind this move to system based diabetes management isn’t competitive bidding or the commoditization of drugs and device rather the coming of outcomes based compensation. In the future physicians won’t just be paid for treating patients; they will be incentivized for better patient outcomes.  In a world where outcomes matter physicians will use systems which not only gather data but can seamlessly transmit this data. In a world where outcomes matter physicians will more closely monitor a patient’s progress to insure they get their bonus. They will want easy to use point of care tests, tests which monitor not just daily glucose levels but glycemic variability and A1C.

The only real question is not if the future will get here rather when it will get here and which companies have the vision to prepare for the future.