Approaching an inflexion point

Approaching an inflexion point

Having been in this wacky world for some 20 years Diabetic Investor has witnessed several transformative events. Yes, we witnessed the glucose meter market transform from a medical device to consumer product market to finally a commodity market. We watched as the Avandia controversy unfolded, an event which has forever changed the diabetes drug landscape. We have seen the rise, fall and rebirth of several legacy franchises. Now with the annual ADA confab just a few weeks away Diabetic Investor believes that this wacky world has reached an inflexion point.

The driving factor isn’t so much what will be done but who will be doing it. As we noted today with the comments made by Roche there are still some very delusional people in this wacky world. People who just refuse to accept reality, continuing to hold onto the past. Honestly if we didn’t know better we would think that the good people at Roche still believe that mobile phones are a fad and that rotary phones will make a comeback.

While some of the old guard will survive, the harsh reality is most will not. This is not because they do not employ smart people or that they don’t have solid products. The reason is they just can’t make the transition from the way things used to be, to where things are going to be. They see the change coming but just can’t come to grips with it. An additional problem is they must live in the old world while the new world is being built.

The companies who will be the market leaders of the future have a huge advantage as they are not handicapped by experience. They look at the market from a completely different perspective than the old guard. Now normally this inexperience would be a handicap, and we have seen instances of this. However, these newbies besides having the resources needed also are quick learners. They do not curse the darkness rather they seek the sunlight.

Here are just some of the trends that will be driven by these newbies;

When it comes to diabetes management data analytics is where it’s at and not just for insulin using patients. Data analytics will have a more immediate impact on these patients but will have a transformative impact on the much larger non-insulin patient population.

Diabetes Management Systems (DMS) will become a reality. Systems that will include not just the drugs and devices a patient uses but will extend to include apps. It will be through these apps that the patient and physician sees the impact of data analytics. Data analytics that will be patient relevant and more importantly patient actionable.

The insulin market will be the first diabetes drug market to commoditize but unlike the BGM market this commodization will have a net positive impact on patients and not just from a cost perspective. We further believe that the companies who manufacturer these cheaper insulins’ will do just fine from a margin perspective.  The simple reality is yes biosimilar insulin’s will be cheaper than branded products but not so much cheaper that money cannot be made.

A secondary benefit of cheaper insulin will be more options for the patient. Think pre-filled insulin cartridges for insulin pump patients or pre-filled pre-programed patch pumps. This does not necessarily mean that we are witnessing the death of the old fashioned syringe just yet but that day is on the horizon.

Continuous glucose monitoring systems will become the standard for ALL diabetes patients and not just insulin using patients. Data analytics makes this possible as it won’t be the patient or even the patients physician who will be analyzing all this data. This function will be replaced by sophisticated software which will not just crunch the numbers but transmit therapy recommendations back to the patient/physician. Like syringes this does not necessarily mean that the patients physician will be replaced but there is no question the role the physician plays will become more consultative. Although physicians hate to hear this the simple fact is face to face human interactions are just too expensive.

The bottom line here is that the bottom line is the reason these trends will emerge and why the old guard won’t be able to adjust. The reality is the old guard asks why, the new guard asks why not. The old guard says it’s a waste of time and money to get non-insulin patients to use a CGM. The new guard sees CGM as the only way these patients should be monitoring their glucose levels and understand that for this to happen the system must do all the work. That all a patient will need to do is slap on the sensor and the system will do the rest.

The same will go for the drugs patients use as thanks to data analytics patients and their physicians will not only know whether a therapy regimen is working or not, but also what adjustments need to be made. Patient interventions will happen at a much faster pace and will no longer be driven by a patients HbA1c test result. We will even go one step further and state we see HbA1c be supplemented with additional biomarkers to provide a clearer definition of control.

Now at this point everyone is asking not just who the winners will be but also how long will it take for this inflexion to occur. While it may seem like all the high tech cash rich companies who have dived into the deep end of the diabetes pool will be winners, yet that’s a vast overstatement as some are too esoteric and don’t understand how things work in the real world.   It would also seem that the current crop of diabetes devices companies are in big trouble, and while there is element of truth to that statement, some will survive.

The major diabetes drug companies should do ok but some of the fringe companies those who either have incomplete portfolios or lack the ability to execute will be relegated to second or worse status.

Timing is the more difficult question as many of these trends are taking place as we speak, others will take longer to develop. Our best guess is that 5 years from today when we approach the annual ADA confab 70% of the old guard will be gone.