A sign of things to come

A sign of things to come

Now that Roche has finally decided to pull the trigger and spin off their diabetes unit into a separate privately held company, as per usual the diabetes world is abuzz about what will happen next. As so often happens instead of being proactive many companies are now forced to react. So let’s roll the dice a little and speculate on what will come next.

Let’s start with Roche’s main competitors Johnson and Johnson (NYSE: JNJ) and Abbott (NYSE: ABT). And let’s throw in all the way cool whiz bang newcomers like Livongo, Telcare, iHealth, My Dario and OneDrop. And let’s not forget about Trividia Health, the old Nipro Diagnostics and what the heck just for grins and giggles let’s add AgaMatrix. Ok we shouldn’t exclude Arkray either, after all we don’t want hurt anyone’s feelings by leaving them out as Diabetic Investor does not want to be seen as insensitive.

What should strike everyone like a ton of bricks is that as bad as the conventional glucose monitoring market is there still are lots of companies who want to play in this sandbox. That some of these companies have survived this long should also tell everyone that even today money can be made in this market. That even as this market sinks into the abyss there are many who are ignoring the handwriting on the wall, handwriting which is written with all caps in boldface type.

What’s the surest way to oblivion; gain an increasing share of a declining market. To be the last man standing so to speak.

Conventional BGM isn’t doomed just because of competitive bidding, price contraction and declining usage. Conventional BGM is doomed because of technology, the emergence of continuous glucose monitoring as the standard for glucose measurement. Anyone who doubts this should go to their nearest pharmacy and look for test strips that use urine to measure glucose levels. They should ask the pharmacist for Accu-Chek Comfort Curve test strips or a SureStep monitor.

Next they should look at the increasing usage of GLP-1’s, a therapy option which does not require a patient to monitor their glucose levels.

Oh and did we mention all the off-shore companies who make very cheap monitors. Companies who not only compete here in the United States but also in those emerging markets which everyone thinks will save the major companies.

Anyone in BGM must feel like Jay Cutler of the Chicago Bears, a type 1 diabetic himself. Jay is playing behind an offensive line that has more holes than Minnesota has lakes and Wisconsin has cheese. While Jay will occasionally get some protection more often than not he is running for his life. It seems no matter where he turns there is always a defensive lineman bearing down on him getting ready to flatten him. This is what it’s like to be in conventional BGM nowhere to run, nowhere to hide.

Now let’s look at Medtronic (NYSE: MDT), Animas, Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD) as they too are impacted by Roche’s move. Of the four Medtronic is in the strongest position thanks to their huge installed user base. Animas depending on what JNJ finally decides to do may or may not be ok. Their problem is they are part of JNJ and the folks in New Jersey just can’t seem to decide whether to turn right, turn left or go straight ahead. Insulet should be ok in the near term but unless they get their sensor augmented system to market and soon their long term outlook is murky at best. Tandem sorry to say seems to be on a slow death march, they have the best user interface but it’s difficult to survive when they lose money and are bleeding cash. Tandem’s best hope is the folks in Northridge or New Jersey come along to save the day.

And what about all those companies that have way cool whiz bang diabetes apps, as yes they too are impacted. Apps which are following the same path as BGM and insulin pumps in that they are becoming…. Wait for it … a COMMODITY.  Yep they are way cool and so whiz bang but they also do the same thing the same way. Yes, they may go about it in slightly different ways but ultimately there isn’t a whole lot difference between them.

Now at this point some are saying; “Hey it’s not about selling stuff anymore it’s about driving patient engagement and better outcomes.” This is true however the problem is the future of outcomes based reimbursement hasn’t arrived yet. Problem number two is that if these companies are to survive until the future gets here they have to make money and right now selling stuff is how money is made. Now if these companies were awash in cash had the resources to weather the storm until the sunshine arrived things would be different. Sure many have been successful in raising money but the well will eventually run dry and then all bets are off.

The bottom line here what all these companies have in common is that must be in diabetes to survive. That their survival depends on being in the diabetes market they do not have the luxury of having boatloads of cash and other operating units which generates boatloads more. These companies are chained to the past as they try to adapt to the future. They must bridge the gap between the way things are today and the way things are going to be in the future. Simply put they are not the folks in the Valley who are awash in cash, have other operating units which generates boatloads more and who don’t need to be in diabetes they want to be in diabetes.

So as these conventional diabetes companies scramble to deal with the domino that Roche has just pushed over. The folks in the Valley are going about their business and shaping what the future will look like. They are not being reactive they are being proactive.

As Momma Kliff used to say; “You have two choices in life, you can deal with change or make change happen.”