Addiction or Lunacy?

Addiction or Lunacy?

This morning we learned of yet another company that wants to enter the already crowded CGM market. Right now, there are three main players in the market, Dexcom (NASDAQ: DXCM), Medtronic (NYSE: MDT) and Abbott (NYSE: ABT). Roche is also soft launching their system in Europe and has a deal with Senseonics which has an implantable CGM. Also in the implantable space is GlySens.

Since we have written about this market so often there is no need to get on our soap box. Yes, we know CGM is the future of glucose measurement. Yes, it will put the final nail in the BGM coffin. Yes, it provides better and more useful data for the diabetes eco-systems out there. Yes, CGM has the potential to transform diabetes management as we know it today. These are the things CGM has.

Here is what the CGM market doesn’t have, room for all the companies who think they have a better mouse trap. Room for companies which are putting a new twist on an old idea; an idea which doesn’t work. Will this stop these companies from trying? Will it stop them from raising capital? Sadly, the answer to both questions is NO.

Here is what Diabetic Investor cannot grasp; why are people still funding these efforts. Why these investors are not doing their due diligence? For if they did they would find out very quickly that their investment is about to go down the toilet. Listen is it really that difficult to use Google, who by the way is also in this space partnered with Dexcom. Perhaps they should Google C8 Medisensors or Fovioptics.

Now let’s just for a moment assume that a company does have a better mouse trap. Let’s further assume they can succeed where everyone else has failed. That a miracle happens and they can get their system approved by the FDA. A process which will take years and cost millions. Then ask two questions; what problem are they solving that the existing systems don’t solve and what will the CGM market look like when they finally receive approval?

We hate to dump on our friends at Tandem (NASDAQ: TNDM) but they are an example of what we are talking about. Yes, we know that Tandem is an insulin pump company but the example is appropriate. Tandem entered an already crowded market not with a better insulin pump, Tandem’s main value proposition was that it had a superior user interface. The pump itself was like every other insulin pump, doing the same thing the same way. The Tandem system did not solve a problem nor did they correctly anticipate what the insulin pump market would be like when they got approval.

Today Tandem is on life support and praying that someone comes along and buy them before they run out of money.

Want another example how about AgaMatrix. From day one the main value proposition was they had a more accurate meter. Only problem was other than a handful of people no one cared. Did their meter solve a problem, nope. Did the BGM market need yet another system when the AgaMatrix system came along, not by a long shot. Where is AgaMatrix today, in the bed right next to Tandem.

Old habits die hard in this wacky world and one of the oldest is the belief that if we build it someone will buy it philosophy. This philosophy may have worked ten years ago, but not anymore. Still it amazes Diabetic Investor that so many still believe in this philosophy. It is this philosophy that doomed Insulet (NASDAQ: PODD) a company built to be bought. When that didn’t happen, management had no clue what to do. The issues the company faces today can be directly linked to this.

Here is what happens in this wacky world. These newbies come with a way cool whiz bang PowerPoint which goes something like this. Diabetes is growing at epidemic rates on a global basis. Diabetes is not just a healthcare crisis but an economic crisis. Most patients are not under good control which leads to very costly complications. The market we play in is under penetrated and our way cool whiz bang thing is better than the existing technology available. We don’t need to capture a huge share to make a ton of money given the huge patient population. Even better using a history as guide someone will come along and buy us.

Now before we go any further let’s be clear about something. Everything these companies say is factual. Diabetes is growing at epidemic rates, it is more than just a healthcare crisis, poorly controlled diabetes does lead to some very costly complications, markets (it really does not matter which market) on the surface appear to be under penetrated and whatever their whiz bang technology may be it can be made to look like it’s better than what’s already on the market. It is also true given the huge patient population that they don’t need a ton of patients to make a ton of money. And it is very true in the past that greater fool theory was alive and well.

These companies are not out and out lying. Rather they are playing very fast and very loose with the facts. What they are counting on most of all is that investors either won’t do their due diligence or if they do they will believe this company really does have a better mouse trap. So even though everyone else has tried and failed these guys won’t. We have seen this more times than we care to mention.

It’s almost as if these investors are addicted to believing some very well presented bullshit. Either that or they are just lunatics who want to lose money.

As Momma Kliff used to say; “There is a reason these schemes work. There is a reason some very smart people so willingly are bilked out of their money. There is a reason that the ones who do investigate still invest even when no one has succeeded in the past. It’s called hope and dreams of riches. They let the possibilities of tomorrow blind them from the realities of today.”