A Solution Looking for a problem

In most industries companies try to find solutions to existing problems, in our wacky world we have a host of companies that have developed solutions to problems that really don’t exist. Two of these companies reported earnings yesterday – Senseonics and Valeritas.

Now let’s be very clear about Senseonics who makes an implantable CGM sensor, we never had a problem with the system, it works just fine. Nor have we ever claimed there is no place for an implantable CGM system in the treatment paradigm. Our problem with Senseonics has been and continues to be the business model doesn’t work.

As we have seen with Libre and Dexcom massive scale is required to make this a viable business. The Libre and G6 along with just about every other CGM wannabe make sensors that are worn on the body, replaced every 10 days to two weeks. This is in sharp contrast to the Senseonics sensor which is implanted in the patient who then must also wear a transmitter on their body so that readings can be transmitted to their smartphone. When the Senseonics sensor runs out of battery life it must be removed and a new one put in.

The theory behind the whole implantable CGM model is that once inserted life would be easier for the patient as they would not have to change their sensor every 10 days to two weeks. The theory was that on a per day cost these implantable sensors would be cost competitive with standard wearable sensors, thus making them acceptable to payors. Well unfortunately for Senseonics these theories have not turned into facts, and damn those pesky facts are a problem.

As we anticipated new patient starts and reinsertion rates aren’t generating enough revenue which as the company noted during their call is causing them to cut staff and reduce costs. Now we don’t want to say we told you so, remember Momma Kliff told us not to gloat, but this exactly what we thought would happen. Again let’s be clear here the system itself works just fine and yes there is a niche market for implantable sensors, unfortunately for Senseonics CGM has become a mass market where scale means everything.

Both Abbott and Dexcom are spending small fortunes to expand capacity not just to meet the increasing demand for their sensors but also to lower production costs. With their limited appeal Senseonics will never be able to match these COGS nor will payors pay a premium for their system. Simply put Senseonics has a very good product that does not really solve any problem.

Valeritas has the same problem just in a different market. Valeritas makes a disposable dumb patch pump which in theory benefits a patient as they don’t have to inject themselves multiple times each day rather, they put the patch on every three days. Now Valeritas isn’t the only dumb patch pump company but so far is the only one who has been able to commercialize their product.

We have always had a huge problem with these dumb patch pumps as like the Senseonics implantable sensor they are a solution for a problem that doesn’t exist. Also like Senseonics they have little if any chance of achieving the massive scale they need to be commercially successful.

Valeritas also has the additional problem as they are trying to turn their dumb system into a smart system with an attachment to the pump that, you guessed it, sends information to the patient’s smartphone. This may be way cool whiz bang but is also adds to the cost, which is the last thing Valeritas needs, as either they give away this attachment which lowers margins or charge for it which adds to the cost which takes away any cost advantage they may have.

Worse though is there really is no need for this product. With the advent of Tyler, a connected insulin pen, CGM and app – insulin dosing for patients following multiple daily injection (MDI) therapy is about to become easier than ever. Additionally for all the talk about painful injections thanks to advanced needle technology injections while never pleasant really are not painful.

Should a patient want to avoid injections and go with a real wireless option they have very nice option with the OmniPod from Insulet. The OmniPod is wireless, last for three days and has all the advanced features of a real insulin pump. The OmniPod is also available at the pharmacy, which not only makes it affordable but convenient as well. While it may come as shock to Valeritas but Insulet has done an outstanding job of converting patients from MDI to the OmniPod. They have done this not because the OmniPod is tubeless, or affordable but because the OmniPod is a smart system. Patients are aren’t stupid nor should their insulin delivery system be.

Like Senseonics Valeritas has developed a solution for a problem that doesn’t exist. Like Senseonics Valeritas has competitors that offer better and cheaper solutions. Like Senseonics Valeritas has the additional problem that these competitors are larger, have greater financial resources and large installed user bases. Both Senseonics and Valeritas are playing on the fringes of their respective markets which just aren’t large enough for a sustainable business model.