An Impressive Company

An Impressive Company

Before we get into the early presentations a few quick notes. First you know this is a big conference when there are three different Twitter # tags – #JPM19 #JPM2019 and #JPMHC19. Second as per usual companies which aren’t presenting here piggyback on the news flow making their own announcements. Bigfoot being the most recent example announcing today a non-exclusive deal with Lilly. Per a company release:

“Bigfoot Biomedical, Inc., a diabetes company using artificial intelligence to develop solutions for optimizing the dosing and delivery of insulin, today announced a non-exclusive cooperation agreement with Eli Lilly and Company (NYSE: LLY) to support integration of Lilly’s insulin products into Bigfoot’s systems currently in development.”

While this sounds impressive in reality it really doesn’t amount to much. Lilly already has an agreement with Dexcom (more on the them in a moment), they are developing their own insulin pump and “smart” pen and no one expect for Lilly is sure any of these way cool whiz bang cloud enabled toys will ever see the light of day. Given this is a non-exclusive agreement Lilly has nothing to lose while Bigfoot gets to make an announcement which makes it seem like they are being endorsed by Lilly. Bottom line this is much to do about nothing until Bigfoot actually has something on the market.

Before their presentation this morning Dexcom announced preliminary 4th quarter and full year results which where nothing short of outstanding. Per the release;

“DexCom, Inc. (Nasdaq: DXCM), the leader in continuous glucose monitoring (“CGM”), today reported that it expects preliminary, unaudited revenue for the fourth quarter ended December 31, 2018 to exceed $331 million, an increase of at least 50% over the fourth quarter of 2017. For fiscal 2018, total preliminary, unaudited revenue is expected to exceed $1.025 billion, an increase of more than 42% over 2017.”

We’d like to report that the company presentation was newsworthy but unfortunately or perhaps maybe fortunately nothing really new today. The CGM market continues to expand, Dexcom continues to execute and as Momma Kliff would say life is pretty good. It may sound redundant but Dexcom continues to set the standard for how to run a diabetes device company. Even better they are not letting this continued success inflate their ego’s the company is acutely aware as good as things are today they have existing competitors and more on the way. They fully understand the complexities of the market and the issues that could derail this train.

All in all this is why management talent matters and we can think of few diabetes device companies that have the level of talent Dexcom has. Which is likely why before the Q&A began an analyst leaned over and whispered in my ear; “This is one impressive company.” Really Ya Think boy these analysts are so smart.

Switching gears completely the Medtronic presentation and corresponding breakout session was somewhat enlightening. During his prepared remarks CEO Omar Ishrak was all peaches and cream everything is great in diabetes land. Yet during the Q&A the company acknowledged that not all is great in diabetes land as the unit is running into “headwinds” with “tough comps” and “no upside” in the back half of the year.

Now we would have liked to heard greater clarity during the Q&A however no one not one person in the audience was given the chance to ask any questions. Listen we get that the JPM analyst get the curiosity of asking a few questions before everyone else chimes in but not today. Even though several of us raised our hands the JPM analyst moderating the Q&A never called on any of us although it was clear he did see the hands being raised. This leads us to believe the analyst was instructed not to allow any questions from the audience even though this is the purpose of the Q&A session.

What did we want to know well how about some clarity as to just when future versions of the 670G now under development will make their way to the FDA. Or how about why the company continues to be so high on their standalone CGM when they have no presence in the market and their current standalone system is inferior to what’s already available. Finally we wanted to understand why they are painting such a rosy picture for diabetes when the unit has just undergone a series of layoffs while at the same time instituting cost savings measures, not to mention the ongoing FDA investigation.

As per Medtronic the company is making a big deal out of something that isn’t a big deal but to people who don’t understand diabetes seems like a big deal. Omar did mention more than once how the SugarIQ app that works with their standalone CGM can now give patients a 4 hour warning of a POSSIBLE hypoglycemic event. Call this technology revolutionary. Well we hate to rain on Omar’s parade but a 4 hour warning of a POSSIBLE hypoglycemic event is like a weatherman stating that it might rain during tonight’s college football championship game. Even if it does rain its not like either Alabama or Clemson can do much about it.

This isn’t like the Tandem Basal IQ system or even Medtronic’s own 630 or 670 which suspends insulin delivery when it detects a low coming. What’s ludicrous here is that the analysts buy this crap and don’t bother to understand a few points;

1. First and this is not a given by any means when it comes a Medtronic CGM the system must deliver accurate readings consistently.

2. Second no one bothers to ask just what a patient is supposed to do what action step are they supposed to take for an event that MAY or MAY NOT happen in 4 hours.

a. Do they suspend insulin delivery?

b. Do they eat something?

The reality when it comes to Medtronic and a standalone CGM is it’s all smoke and mirrors. Or as my Texas friends would say all hat and no cattle. Will they eventually have something on par with Dexcom or the FreeStyle Libre, maybe. Just when is anyone’s guess. Which begs the question how they plan on competing with Dexcom and Abbott gobbling up patients. The answer of course is money just as they bought up formulary position in the insulin pump space they would need to do the same in the standalone CGM space.

Is this doable? Sure for as Momma Kliff used to say money buys lots of things. However unlike the insulin pump space Medtronic does not own the CGM space therefore meaning they would pay dearly to become a player. And just as the company does not sit ideally by when someone invades their insulin pump territory Abbott and Dexcom won’t just sit around and do nothing when they attempt to enter the standalone CGM arena.

All in all life for Medtronic diabetes is not as blissful as the company says it is. Those headwinds they acknowledge could soon become gal force winds making for very tough sailing ahead.