Best bet?

We’ve been getting lots of questions on which of the pure plays in diabetes are the best bets right now. As we noted the other day valuations by traditional measures have been cast aside as several of the pure plays in diabetes have seen their shares skyrocket. Just to be clear we define pure plays as any company whose main revenue steam and future business model is built substantially around diabetes.

This group includes Dexcom, Insulet, Tandem, Senseonics and MannKind. These five companies are as close to pure diabetes plays as it gets. We suppose we could include Novo Nordisk in this category as well, but would exclude Lilly, Sanofi and Medtronic. Should Livongo pull off their IPO they too would be included.

Over the past 12 months

Tandem +1,571.50%
Dexcom +123.16%
Insulet +11.79%
Novo Nordisk +0.63%
Senseonics -3.48%
MannKind -27.39%

At first glance it would seem logical that there is no way Tandem could replicate this performance over the next 12 months. However, this by no means says Tandem is not a worthy bet as the company now under new leadership is well positioned in the highly competitive insulin pump market.

Dexcom seems better positioned for 2020 given market dynamics. This isn’t to say 2019 will be an off year rather we see 2020 as the year this rocket gets launched into space. The stars are aligned for the CGM market to take off with both Dexcom and Abbott being the primary beneficiaries.

As Insulet begins to launch the DASH like Dexcom we see 2020 as a bigger year for the company. The company has a robust pipeline with 2020 being the year they finally make it to the world of sensor augmentation.

Novo being the lone drug company in this bunch faces the most significant hurdles, the real question is will the oral version of semaglutide match expectations. Initially we felt this drug would be a blockbuster however it’s not the slam dunk we thought it would be. The key is the somewhat complex dosing regimen, it remains to be seen how this regimen will impact sales. There is no question this is the most critical drug launch in the company’s long history.

Senseonics continues to remain somewhat of a conundrum. The real question is just how big of a niche is the implantable sensor market. As we have noted before we see a place for this system but just can’t get our arms around how big of a place that is.

Although Afrezza remains a big story for MannKind we think its only part of the story as this company really isn’t a diabetes company but a drug delivery company. The problem is the street still sees MannKind as a diabetes story and not a drug delivery story. The company continues to sign deals while cleaning up their balance. While we wouldn’t bet the ranch on MannKind it does have the most favorable risk/reward profile of all the companies mentioned.

New investors into MannKind would be well advised to go in with their eyes fully open. While we would not necessarily call this an all or nothing bet in many ways it is. Trading at below $2 per share it would seem it would have nowhere to go but up. We wouldn’t bet the farm on MannKind, but we believe it’s worthy of a few shekels as should the street start to see what we do this stock could break from its current pattern and have lots of open field running ahead. Not sure it will be as dramatic as Tandem, but it could see some serious upside.

With the possible exception of Novo, we wouldn’t avoid any of these companies as a compelling case can be made for all that the future looks very promising. Nothing against Novo we just aren’t sure they can successfully navigate the complex launch of what is turning a critical product. Getting the drug through the FDA and then onto formulary will only be the beginning as the expectations of the product are well ahead of the realities of the product.