So much for a slow week

Yes we know it’s Taco Tuesday and we had anticipated a slow news week but so far anyway the wacky world has yet to leave for its annual summer vacation. So let’s have it and hope that with the 4th on Saturday things begin to slow down so we can get in some serious fun in the sun.

1. Another Tyler

Now that CGM is becoming the standard for glucose measurement all the BGM companies are finding new and creative ways to remain relevant. Here’s the latest:

“– BIOCORP (FR0012788065 – ALCOR / Eligible PEA PME), a French company specialized in the development and manufacturing of medical devices and smart drug delivery systems, announces today the signature of a distribution contract for its Mallya connected device with Roche Diabetes Care France.

As part of the agreement, Roche Diabetes Care France will distribute Mallya to pharmacies in France. This medical device is an intelligent 2-year reusable injector pen sensor that is compatible with the majority of insulin injection pens, both disposable and reusable. It automatically collects the insulin dose delivered with near 100% accuracy.

In the future, Mallya will also be part of the Roche Diabetes ecosystem consisting of connected blood glucose meters (Accu-Chek Mobile, Accu-Chek Guide) and digital solutions for better patients care.

Gluci-Chek is a smartphone application regularly used by nearly 60,000 diabetic patients in France. It brings together three major functionalities for personalized diabetes management: a carbohydrate calculation tool with visualization of portions on the plate, a self-monitoring glycemic logbook and a graphic visualization of glycemic results.”

So Roche joins Ascensia and LifeScan in the race to commercialize a Tyler. Yes these three major BGM companies desperate to remain relevant are trying to reinvent themselves using Tyler as their main platform. Never mind that even if they are successful, something we aren’t sure of, CGM will do to them and their Tyler what it did to their old BGM franchises, it will destroy them.

This being the case it makes us wonder why other than LifeScan neither Roche or Ascensia has yet to buy or partner with any of the many Dexcom wannabes. To be fair Roche was aligned with Senseonics, but they are smart enough to know that while the Eversense system works just fine being an implantable sensor is a non-starter.

For Tyler to be truly successful it must be sold as an insulin dosing system, with all the pieces of the system, including insulin, sold in one box. As we have noted it’s not a question of if a biosimilar short-acting insulin will get here but when it gets here. This is the reason Lilly and Novo Nordisk, each of whom with a Tyler under development has been moving at glacial speed. Lilly and Novo have no sense of urgency until this biosimilar arrives as they continue to sell plenty of Humalog and Novolog without a Tyler. This as we continue to state has opened the door for everyone else to bring their Tyler to market before Lilly and Novo.

There is no question in our mind that Tyler once here will change the dynamics of the insulin market plus do something great for patients making insulin dosing easier than ever. But this won’t happen using a BGM it will happen with CGM, which as we have noted in the past is the straw that stirs the cocktail. It won’t happen while branded short-acting insulins continue to dominate, it will happen when the biosimilar’s arrive. We have plenty of apps and plenty of connected pens or connected pen cap covers.

Yet what’s needed more than anything else is a set of brass ones. It’s hysterical watching all these companies stumble about unable to see the forest for the trees. Rather than take bold and deceive action they continue to over complicate a simple peanut butter and jelly sandwich. For the BGM companies in particular this lack of deceive action is troubling as their very survival is at stake. It’s just a matter of time before CGM is used by all patients making BGM obsolete.

BGM won’t go away completely but the market will not be large enough nor profitable enough to sustain even the healthiest of BGM companies. The clock is ticking approaching midnight and then it will too late. It’s time to act and act NOW.

2. Isn’t an earnings announcement supposed to be about earnings?

We ask this as the Nemaura Medical earnings announcement contains more corporate speak then any real numbers. Now we are not going to dignify all the BS the company stated in their release but will tell you the numbers. Per the release;

Research and development expenses decreased to $2,009,000 for the year ended March 31, 2020, compared to $2,297,000 for the preceding fiscal year.

General and administrative expenses increased to $2,769,000 for the year ended March 31, 2020, compared to $2,180,000 for the preceding fiscal year.

The company’s comprehensive loss applicable to common shareholders was $4,200,000 for the 2020 fiscal year, compared to $4,800,000 for the same period in 2019.

As of March 31, 2020, cash accounts were $106,000, compared with cash of $3,700,000 as of March 31, 2019. As of June 29, 2020, the company’s cash position was $5,460,000 and an additional $2,350,000 due to be received from exercise of proceeds from recent ATM drawdown.

Pay close attention to that last paragraph as the company was nearly out of cash and had they not found more cash would be on deaths doorstep. The fact that this shame of a company can continue to find lenders is astonishing but hardly surprising. This isn’t the first nor will it be the last time that investors and lenders have failed to perform their due diligence. Nor will be it the last time investors and lenders fall for the story, the toy without asking if the damn thing is real.

While we think the company is full of it we cannot blame them for taking advantage of the situation. They are merely playing to their audience. These investors and lenders are willingly handing over their money. It’s not the company’s fault these investors and lenders are dumber than a doorstop. As Momma Kliff used to say when people are stupid enough to give you money without doing their homework take it.

Does this make any sense?

Yesterday Tandem stated they have finalized their agreement with Abbott. Per a press release;

“Abbott (NYSE: ABT) and Tandem Diabetes Care (NASDAQ: TNDM) announced today that they have finalized an agreement to develop and commercialize integrated diabetes solutions that combine Abbott’s world-leading continuous glucose monitoring (CGM) technology with Tandem’s innovative insulin delivery systems to provide more options for people to manage their diabetes. The companies first announced their intention to work together in October 2019, and this resulting agreement covers the technical development of device integration and associated commercial support activities.”

Sounds great until you consider that integrating with any version of the Libre is pretty much worthless given the warning that came with the Libre2 approval. Now unless we missed something Tandem is an insulin pump company, and unless we really missed something they still have the coolest toy in the toy chest, the Control IQ. A system which works with a real CGM one that is actually worthy of the iCGM designation.

We hate to beat a dead horse but seriously how the hell did the FDA grant the Libre2 iCGM when it cannot be used with automated insulin dosing or low glucose suspend. Someone has to explain this and please do it slowly as it makes no sense whatsoever.

Thinking that maybe we were asleep at the wheel we reached out to Tandem. Who said;

“We have not specified which version of Libre technology we’ll be integrating with. It will be determined by a few different factors, including the timing for product integration work to be complete and for Abbott’s iCGM designation to be cleared for AID system compatibility.”

Ok fair enough, which when translated from corporate speak means Tandem is all for interoperability, they have nothing to lose with this deal so why not. The Control IQ will continue to kick ass and take names. Tandem looks good to the diabetes community who seems to think interoperability is the greatest thing since sliced bread and soft soap.

Dexcom their partner with Control IQ likely could care less as only the lord knows when Libre2 will get AID clearance. In the meantime they will continue to work on the G7 which given the way Abbott has been getting things through the FDA will likely get here before Libre2 has AID clearance. Unlike Abbott, Dexcom is magnanimous when it comes to their backstabbing competitor. Likely because they know that Abbott is committed to a value strategy for Libre and nothing not even Libre2 getting AID clearance will change that.

Why Abbott has chosen to go after Dexcom behind the scenes remains a mystery and only lessons our respect for the company. Be happy with your billion-dollar franchise and be thankful you are not Medtronic. Why oh why can’t all the children play nicely in the sandbox?

Anyway we have also learned that Insulet has been talking with our friends at Abbott as they too are wondering when Libre2 will get AID clearance. Yep Insulet is an insulin pump company and yep they also work with Dexcom who does not have to do anything to work with the Horizon because it is a real CGM one which earned iCGM because it is really an iCGM. Like Tandem Insulet wants interoperability and like Tandem they have nothing to lose in working with Abbott. So expect Insulet to say something nice about their Abbott relationship when they report results on August 6th.

We would also encourage everyone to mark July 16th on their calendar for this is when Abbott reports results. Now our guess is that the Libre2 will be discussed and some bright analyst, yes we know that is a contradiction in terms or what some would call an oxymoron, might ask just how the hell Libre2 is an iCGM when it cannot be used with AID. They might also ask what steps are necessary to gain AID clearance, have any of these steps be taken yet and why the hell did it get iCGM in the first place.

Believe us when we say this, but Abbott will make this issue into a positive which is almost as priceless as Medtronic saying that patients still want to calibrate a CGM with an old fashioned fingerstick. But Abbott being Abbott they will go out of their way to minimize what is turning into a major embarrassment.

And Liber2 got iCGM why?

The walk of shame

As summer sets in and we get ready to wish America Happy Birthday this Saturday this promises to be a slow news week in our wacky world. Yet in our never-ending quest to find good copy and keep everyone amused we came across what we thought for sure would be great copy when the Medical Design & Outsourcing web site published their list of 20 medical device start ups you need to know.

Listen when it comes to way cool whiz bang the diabetes world is tops, or so we thought. Yes while the diabetes epidemic rages on everyone continues to be overly fascinated with the toys in the toy chest. Never mind that 99% of these toys haven’t done a damn thing to improve patient outcomes. Nope when it comes to way cool whiz bang toys diabetes is or perhaps we should say was numero uno.

So just how many diabetes toy companies made the list – zero, zilch, nada, none. Oh the shame. Not one way cool whiz bang toy was worthy. How could this be?

Yes we know that Bigfoot is not a start-up as they have been around since 2014 and have raised something like $150 million. And yes we also know that Bigfoot is best known not for coming up with way cool whiz bang toys but overpromising and underdelivering. But still they really should have made the list for their Unity connected cap cover which tells the patient they just injected. Now just why this is valuable information we haven’t quite figured out yet.

As someone who used to inject we can say empathically that we didn’t need a way cool whiz bang toy to tells us what we already knew, but what the heck after 6 years and $150 million Bigfoot finally delivered.

It also goes without saying that Abbott is no start up but the Libre2 should also be on this list. How this toy ever got an iCGM designation remains a mystery to the folks in diabetes toy land. Someday someone from the FDA will have to explain to us how when the toy cannot be used with any automated insulin dosing system it received an iCGM designation.

Believe it or not it could be worse as Medtronic continues to believe that patients want to calibrate a CGM with an old fashioned fingerstick. Of course this is the same company that didn’t want to invest an additional $300 million in diabetes R&D letting Blackstone fork over the capital instead.

One of the better toys we’ve ever seen are these systems which seem to think a user will whip out their smartphone, take a picture of their meal and then calculate the carbs. Yes we know that lots of people take pictures of their meals and for reasons we have never understood posted them on social media. Yet we can only imagine a couple on a romantic date getting ready to enjoy their meal when the guy says, “excuse me my love I have to calculate the carbs in this luscious meal so indulge me while I take a picture of this glorious steak instead of you my gorgeous date.” No walk of shame after that romantic moment.

Some may remember the Solo insulin pump from Medingo. Which in an attempt to lower cost made the Solo a semi-disposable pump. Way back in the day my wife and I sat down with the good folk from Medingo who demonstrated the system and how it needed to be assembled. Then with no prompting whatsoever Deb, god rest her sole, said “You have got to be kidding you really expect my husband to do all that every three days.”

We could go on as there are numerous examples of way cool whiz-bang worthless toys the diabetes landscape is littered with them. Yet here we are in 2020 and not one-way cool whiz bang toy in diabetes was deemed worthy of being in the Top 20. We are disappointed and expect each and every toy maker to make the dreaded walk of shame.

Our fascination continues

As most of you have probably guessed given all our references to Star Wars we are big science fiction fans. Prior to Star Wars Star Trek was and continues to be a favorite of ours. As any Trekkie knows one of Spock’s favorite words was fascinating, although Dr. McCoy has some truly classic lines – Damn it Jim I’m a doctor not a magician – is one that we particularly like but let’s not digress just yet. Being a man devoted to logic if we asked Spock what he thought of Livongo being valued at close to $7 billion he’d say – fascinating.

Watching Livongo, until recently, rise like a rocket ship we kept looking for a reasonable explanation. Valued using any of the conventional valuation methods there is no way in this galaxy Livongo is worth $7 billion. Since our views on the company have been stated more than once no need to restate them. What we will say is that we are not changing our view of the company however we are gaining a better understanding of what the Street sees and why Livongo has achieved this lofty valuation.

First and foremost Livongo was in the right place at the right time with the right story. As Momma Kliff used to say timing is sometimes more important than substance. The diabetes epidemic was already well known, digital health all of sudden caught fire and then COVID hits which threw more gas on the raging digital health fire. To their credit the company took full advantage of the cards they were dealt, first with an IPO, then playing the COVID card (which truth be told was one of the greatest bluffs in card playing history) then a convertible debt offering which took advantage of the incredible rise in their share price.

We have wondered why the company in attempt to throw even more gas on the fire hasn’t gone out and acquired anything. Armed with the cash from the IPO now supplemented from the capital from the debt offering the company could easily afford to do a deal. Well according to several sources this deal drought will soon come to end. Just who they will buy is open to speculation, but we expect it to happen in the near future somewhere in the $300 million range.

This cash balance will also help them combat the coming of a competitor, likely more than one, going 100% at risk. As we have stated previously 100% at risk is coming and this strategy could inflict serious damage. However until that happens the company continues to sign up new clients to multiple year deals. Free may be better than per member per month but we doubt the clients who have signed multiple year deals with Livongo will break them. This then places the ball back in the competitions court forcing them to either buy out these contracts or find clients Livongo has yet to sign up.

Now we are about enter an area we don’t normally talk about as frankly we are not experts on this area. Thankfully we know experts who are much smarter than we are and have the additional gift of being able to dumb down things so even we can understand them. These experts told us to pay close attention to the percentage of shares owned by institutions and the percentage of float they control. Based on the latest data institutions own almost 74% of Livongo shares and control just over 80% of the float.

Put in simply terms unless these institutions begin abandoning the stock it likely will not experience a significant decrease in share price. Again as we have stated before we see only two options for Livongo, either they are bought- an unlikely scenario given their current valuation, or this is the greatest short of all time. Yet with institutions owning almost 74% of the shares and controlling 80% of the float they just might give the company a pass should they miss their aggressive revenue projections.

From the start we believed and continue to believe the company will not hit these projections. An event we see occurring in the third or fourth quarter. Yet even with such a miss the damage to share value could be mitigated given the factors explained above. There is no question should this miss happen damage will be done we just don’t know the extent of the damage. Ironically we could be both right and wrong here as such a miss would lower the valuation making Livongo a more affordable acquisition. Go figure.

About the only thing nearly everyone, everyone but Livongo, agrees on is that Livongo is nothing special. What they do is hardly unique and can be easily replicated. As we said when we began they were in the right place at the right time with the right story and then benefited even further from COVID.

So at this point everyone must saying ok are we changing our view on the company. NO absolutely not. However these additional factors we have outlined today help explain what we could not explain. How this company which we see as nothing more than disease management using newer technology has achieved a $7 billion valuation.

Have a great weekend everyone.

Is Tandem going to add Tyler?

Yesterday Tandem announced they had acquired the Sugarmate app which according to their press release;

“Our acquisition of Sugarmate represents an exciting addition to our digital offerings and supports Tandem’s strategic vision to expand our ecosystem of diabetes-related products and services,” said John Sheridan, Tandem Diabetes Care president and chief executive officer. “We look forward to further advancing our mobile health offerings and continuing to develop and introduce new app features that benefit the broader community of people with diabetes, including the nearly 30,000 current Sugarmate users on pumps and multiple daily injections.”

Now at first we’re like ok no big deal as Tandem is just joining everyone else with a way cool whiz bang app. Although financial terms were not disclosed Sugarmate likely didn’t command a huge investment so why not. As we keep noting with the Control IQ Tandem now has the coolest toy in the toy chest, their stock is doing pretty well and since everyone else has a way cool whiz bang app so like we said before why not.

Then we began to think that perhaps Tandem experienced a lightbulb moment and realized that it might just be a good idea to add a Tyler to their portfolio. Tandem might just be realizing that as great as the Control IQ is that not every insulin using patient wants to be on an insulin pump even one as good as the Control IQ. They may be seeing what we are seeing that Tyler will be a threat to growth and better to offer one of their own and play offense instead of defense.

As we have noted before a real Tyler given its low cost and what will be pump like outcomes could dampen demand for insulin pumps. It also can serve as a bridge between multiple daily injection (MDI) therapy and insulin pump adoption. Either way the way we see it it’s better to have a Tyler then not to have one. That it’s better for Tandem to become an insulin delivery company and not just an insulin pump company.

Tandem already has a relationship with Dexcom and could easily acquire a connected insulin pen and/or connected pen cap cover. They could then use the Sugarmate app to deliver insulin dosing recommendations to their Tyler patients. Not to get off track but the app used with Tyler will be critical as with so many Tyler’s under development all of which will do the same thing basically the same way the usability of the app could become a major selling point. The easier the app is to use the more patient friendly it is the better.

Tandem knows that the user interface for their insulin pumps is major distinction between them and Medtronic. Tandem insulin pumps are iPhone like while Medtronic pumps are like old fashioned pagers. Medtronic is trying to get to the 21st century Tandem is already there. Simply put when you are in a commodity market even when you have the coolest toy in the toy chest design matters.

Now we could be wrong here but we sure as hell hope we aren’t. Given the dynamics of the insulin delivery market with everyone and we do mean everyone developing a Tyler insulin pump companies all of them should get on the Tyler bandwagon. The insulin companies are taking forever to bring their Tyler’s to market which opens the door for Tandem and anyone else whose smart enough to beat them to the punch.

And it should be noted that the insulin companies aren’t the only ones who want a Tyler, some old fashioned BGM companies are sniffing around as are some of the way cool whiz bang patient coaching platforms and let’s not forget Dexcom and Abbott who could easily play in the Tyler sandbox. It stands to reason that whoever gets a real Tyler to market first will have a major advantage.

The insulin companies want to be there to help sell more insulin. The BGM companies want to be there to remain relevant. The coaching platforms want one as it will give them a competitive advantage. The insulin pump companies should be there to protect their pump franchises while adding a new revenue source from a fertile group of patients who can later be converted to a pump. Dexcom and Abbott want to sell more sensors and whether they have a Tyler of their own or work with the Tyler’s under development they could be the biggest winners here as Tyler cannot function without an accurate reliable sensor.

Just as point of clarification given the warning that came with the Libre2 approval Abbott has some work to do before they can play in the Tyler sandbox. Not that we would tell Dexcom how to run their business especially since they are doing a damn good job already, but they could get a major leg up on Abbott by getting a Tyler of their own to market. They not only have the best sensor they also have the best insulin dosing algorithm and all they need is a connected pen/cap cover.

It still amazes us that no one except for Companion is even close to bringing Tyler to market. The insulin companies are dragging their feet as insulin has become a commodity and they are making more money from their growing GLP-1 franchises. The BGM companies are being BGM companies and just can’t get out of their own way. The insulin pump companies have been concentrating on hybrid closed loop systems while the coaching platforms are concentrating on adding more way cool whiz bang.

The irony here is that all of these companies are looking at the forest yet cannot see the trees. Tyler has the potential to forever change insulin use, making it simpler safer and more effective. It also can serve as a major source of revenue not from the sale of hardware but the sale of systems. In the future we can envision patients and/or their insurance companies paying a monthly fee for all the analytics and coaching a real Tyler provides.

What’s needed here is vision combined with capital and chutzpah. Someone has to grab the bull by the horns and move from design to implementation. The reality is being first to market will be huge and will allow whoever this bold company is to have open field running. As Momma Kliff used to say the best time to strike is when everyone else is sitting around thinking about doing something.

Time to play ball!

Ok this is not diabetes related but we did a little happy dance yesterday when the MLB announced there will be baseball this year. This is particularly good news for our beloved Chicago White Sox, sorry Cub fans but we’re the better team this year, who have a nice collection of young talent and should be very fun to watch. With a shortened season you never know what will happen but we’re just glad that baseball is coming back.

Now onto our wacky world where things as always are wackier than ever. A case in point is our friends at MannKind who you may have noticed is on a nice little roll since the ADA. Shares have jumped past $2 and seems to have the BIG MO. Whether this jump is related to what was generally good data coming out of ADA, the shorts covering their positions or a combination of the two do stakeholders really care.

The fact is Afrezza has always been what we said it would be a niche drug. There is no question the drug works and has a place in the treatment paradigm. It will never replace injectable insulin, nor will it become the mega-blockbuster once envisioned by company founder the late Al Mann. However Afrezza is finding its place and is beginning to show signs of life.

The key for MannKind is not to become to enamored with Afrezza and continue to transform themselves from a diabetes company to a drug delivery company. Yes it helps that Afrezza is doing better but the real value here is transforming other drugs from injectable to inhaled. This is the real value of MannKind.

We are continuing our quest to gather more information about how the Libre2 received an iCGM designation, but this is more for grins and giggles than anything else. The more we look at the CGM market the more convinced we are that the introduction of Libre2 is one big yawn. Sure it has some new features but nothing so earthshattering that it would convince a Dexcom user to switch.

Our concern here is that Abbott may be losing their focus and deviating from a strategy that is clearly working. Yes the warning that came with the Libre2 approval seems inconsistent with the iCGM designation but Dexcom has already locked up the major insulin pump players and most of the Tyler systems under development. We don’t think Abbott has lost their mind and decided to enter the insulin pump space nor do we see them overly enthusiastic about their relationship with Bigfoot.

Libre and now Libre2 is a value play. Abbott should not lose sight of this but their actions since the approval are concerning. A much bigger issue looms on the horizon as it won’t be long before Dexcom brings the G7 to market a product that will give Libre2 a serious run for its money including taking away any perceived price advantage. This is a much bigger issue for Abbott than how the Libre2 approval came about and with what restrictions.

Moving to the digital world we continue to wait for OneDrop to file for an IPO. The fact they haven’t yet makes us wonder if the digital health juggernaut is losing steam. As we noted yesterday the leader of all things way cool and whiz bang Apple does not seem overly interested in entering digital health. Shares of Livongo continue to rise to unjustifiable levels and everyone and anyone who has a BGM or CGM is jumping into digital diabetes.

Does this mean the bubble is about to burst? Who knows but with COVID cases once again rising, fears of a second wave coming and all the social unrest it sure as hell feels that way. With the second quarter coming to a close we’ll soon get another piece of the puzzle. A puzzle that is getting increasingly complex.

It has been said that markets like to climb a wall of worry and there is plenty to worry about these days. We just can’t help but feel that when the bubble does burst it will be very ugly and very painful. We hope we’re wrong, but all this irrational exuberance, unjustifiable valuations and outright craziness does not make us feel any better.

But look on the bright side we’ll have baseball again. Play Ball!

Taking a bite out of the Apple

Once again Apple is holding their developers conference and once again everyone is speculating what they will do when it comes to digital health. This leader of way cool whiz bang has only dipped their toes into the water and so far has yet to make the deep dive into the digital health pool. This reminds us of their strategy in diabetes an area they have sniffed around but never quite committed to. It has become somewhat of parole game guessing what Apple will do and since we like games we thought we’d chime in with our thoughts on the subject.

Will Apple replicate what Google has done with Onduo?

They could as they are very public about their relationship with Dexcom and while Dexcom and Verily we’re once partners and still work closely together there is nothing standing in the way should Apple wish to acquire Dexcom. However we do not see the company forming a company like Onduo nor do we see them making any acquisitions in this space either.

Will they come out with their own non-invasive Apple Watch CGM?

NO NO and NO and we do not care how much money they have. Apple has traveled down this path and failed already. They have a relationship with Dexcom which works well for both companies and they really don’t want to have their Apple Watch regulated by the FDA which is exactly what would happen if the technical hurdles were overcome.

Is it possible they will find an alternate use for CGM which would not require the FDA to regulate the Apple Watch?

You can almost count on this one as CGM is not just for diabetes. Right this very moment there are companies which are transforming CGM into a training tool for elite athletes and a weight loss tool for just about anyone. This is where Apple can make some serious money and would not necessarily require FDA approval. While accuracy is a huge issue when managing diabetes it’s less of an issue when CGM is used outside of diabetes.

Now we are not an expert on non-invasive CGM technology our understanding from speaking with the experts is getting consistently accurate data. This is one reason we have yet to see a non-invasive CGM succeed however when not used for managing diabetes this accuracy issue becomes less of a concern. Given the increasing sophistication of algorithms our guess is these less accurate CGM’s would work just fine for athletic performance or weight loss.

Apple can go about this in one of two ways, they could buy Dexcom, own the best CGM and play in all the CGM markets diabetes being just one of many. Or they could buy a Dexcom wannabe and reconfigure the technology away from diabetes. We have long stated that the many Dexcom wannabes are making a major mistake by playing on Dexcom’s home turf and would be much better off playing in the non-diabetes field. Let Dexcom and Abbott own the diabetes CGM world the non-diabetes world is much bigger and much more lucrative.

Is Apple making a mistake by not making a deeper dive into digital health?

We don’t think so as Apple wants to be in areas that generate a consistent reliable increasing revenue stream that supplements their sales of devices. The problem with digital health or digital diabetes anyway is that this world even as new as it is has begun to transform from a monthly per patient fee model to an outcomes-based revenue model. This is a much less predictable revenue model even though it may be more lucrative in the end.

It also requires a substantial upfront investment as any company that moves towards outcomes based must bear the ongoing costs of managing patients plus bears the burden of hitting the outcomes metrics. This is the direct opposite of how Livongo does business as once they get an employee onto their platform they get paid regardless of whether that patient achieves better outcomes or not. Livongo’s burden is to get employees onto their platform and then keep them on it.

Should a company like Onduo convert to an outcomes-based model this would make life very uneasy for the folks at Livongo as both companies do basically the same thing the same way using slightly different technology. Onduo could walk into an employer and state they only pay IF outcomes are achieved, while Livongo walks in and says you pay when your employees sign up. The company will pay under either option the question is when and how much. All things being equal, and they never are, we think employers will prefer the outcomes-based option as it carries no ongoing costs and they can reserve against a future possible cost.

This is not the sandbox Apple wants to play in. They would rather have an Apple Watch which tracks glucose but is not used for diabetes management but for weight loss. They can build a suite of apps around this premium version of the Apple Watch. Apps which can then offer premium options for a small fee which Apple collects. This is the gift that keeps on giving.

Quite frankly the company could if they wanted to become a major player in diabetes with their existing technology. Anyone with an iPhone, Apple Watch or both knows these devices collect a tremendous amount of data which can and usually is shared with Apple Health. Glucose data is collected there as is steps taken, miles run, heart rate, etc. Should they chose to do so Apple could take all this data throw it into a way cool whiz bang algorithm and help someone with diabetes better manage it.

They could, if they choose to do so, also build a suite of apps which could in turn charge a small fee and the cash register begins to ring. Cha Ching!

We suspect the smart people at Apple are aware of this, perhaps not. But the fact is they really don’t need to develop anything new to become a major player in digital diabetes or digital health for that matter. Apple is many things but stupid isn’t among them and their resistance to entering digital health in a big way just might be sending a message to all those who see digital health as the answer to every health issue on the planet. The question is anyone listening.

No Need For This

Now that we have had some time to review the FDA’s recent decision to approve the Libre2 we still have more questions than we do have answers. Such as why did it earn an iCGM designation when it cannot be used with an automated insulin delivery system? Why is Abbott who should be happy to have this approval igoing around trying to discredit Dexcom falsely claiming Libre2 is somehow better than the G6.

Let’s start with iCGM which according to the FDA means;

“An integrated continuous glucose monitoring system (iCGM) is intended to automatically measure glucose in bodily fluids continuously or frequently for a specified period of time. iCGM systems are designed to reliably and securely transmit glucose measurement data to digitally connected devices, including automated insulin dosing systems, and are intended to be used alone or in conjunction with these digitally connected medical devices for the purpose of managing a disease or condition related to glycemic control.”

Now look at the WARNING that came with the Libre2 approval;

“The System must not be used with automated insulin dosing (AID) systems, including closed loop and insulin suspend systems. Remove the sensor before MRI, CT scan, X-ray, or diathermy treatment. Do not take high doses of vitamin C (more than 500 mg per day), as this may falsely raise your Sensor readings. Failure to use the System according to the instructions for use may result in missing a severe low blood glucose or high blood glucose event and/or making a treatment decision that may result in injury. If glucose alarms and readings from the System do not match symptoms or expectations, use a fingerstick blood glucose value to make diabetes treatment decisions.”

Now it seems to us anyway that it’s fairly useless to send data to any device when the data being sent cannot be used in the decision-making process. Which makes us wonder why the FDA gave Libre2 the iCGM designation. Yes it can talk to other devices but using the FDA’s own definition we’re not sure how this data is being used “for the purpose of managing a disease or condition related to glycemic control.”

Then again we have never really figured out why the FDA called the Libre or Libre2 a CGM in the first place – CGM stands for Continuous Glucose Measurement something neither the Libre or Libre2 does as readings are only delivered when the patient scans the sensor, unlike the Dexcom system which CONTINUOUSLY delivers readings to the app or receiver, just saying.

What we really don’t understand is why Abbott is telling analysts that Libre2 is better than the G6. Listen we’ve seen the data, the charts and other stuff they have sent, and we just don’t get it. We have also read the study data for Libre2. What is Abbott upset that shares of Dexcom went UP on the news of the Libre2 approval? Are they pissed that Libre2 cannot be used with a Tyler or insulin pump? Does it bother them that when the G6 was approved for use with the Control IQ it didn’t require a study. Listen anyone who claims Abbott just needs to do additional studies so it can used with AID is kidding themselves. The fact is if a system meets the iCGM standard you don’t need to do an AID trial.

The facts are these the Libre2 is somewhat of an improvement over the Libre. It is not however as robust of a system as the G6. It cannot be used to make dosing decisions and as configured today would be of little value even if it did send data to a connected pen or insulin pump.

Yet most importantly all this noise by Abbott is just that noise as it will not change their strategy. Abbott has made it crystal clear they intend to pursue a value strategy with Libre/Libre2. Get as many of these suckers on as many patients as possible and we see nothing wrong with this approach. As we have said before Libre has exceeded all expectations and does a good job. The system has some known issues but even with these issues does a fine job. This is what makes Abbott’s actions seem petty.

Not like we need to say this again but CGM is becoming the standard for glucose measurement. The market is growing like a weed and is large enough growing fast enough for both Abbott and Dexcom to win, which they are as between the two of them they own 95% of the market. Neither company is facing a serious competitive threat, and both have lots of room to grow even larger.

Frankly the behind the scenes actions taken by Abbott makes us wonder if there is more to this story as it makes no sense. They got what they wanted FDA approval with iCGM, they should be jumping for joy not crying in their beer. They should be taking the high road and acknowledge this approval is a good thing for all patients with diabetes. Instead they are going behind the scenes trying to discredit their main competitor who has the facts on their side. They are using suspect data which when examined by the trained eye looks hollow and quite frankly childish.

Abbott should be better than this, there is no need for these stupid shenanigans. As Momma Kliff said the goal is to win the game. This is not like Game of Thrones where winning means totally annihilating your opponents. This is supposed to be about patients with diabetes what’s best for them. Abbott claims this is what they are all about unfortunately their actions don’t march their words.

It’s time the Wizard gets his due

With Father’s Day coming up this Sunday it’s time we give the Wizard, Momma Kliff’s husband his due. Listen the guy just turned 95, no small accomplishment and while his musing may not get the ink Mom’s has the Wizard like Momma Kliff had a keen understanding of our wacky world even though he may not know it. Yes the Wizard and Momma Kliff were quite the pair and frankly had their hands full with four rambunctious boys.

“Money only solves problems money creates.”

This is one of our favorite Wizard sayings as it directly applies to our wacky world. We cannot count how many times companies believe they can solve a problem just by throwing money at it. It particularly applies to all the Dexcom wannabes who seem to believe that with enough money they can compete with Dexcom and Abbott.

It would be foolish to say that money isn’t important but as we have seen time and time again money alone does not in any way guarantee commercial viability. Dexcom wannabees have many hurdles to overcome but a consistent problem they fail to deal with is how once they jump over all these hurdles are they going to run a commercially viable CGM company. This takes more than money and requires vision combined with talent.

Dexcom and Abbott have not been successful because of money alone each has developed a sound well thought out strategy.

“Events will dictate which decisions are made.”

This is all too true in our wacky world as far too many companies are reactive rather than proactive. Just look at what’s happened with Medtronic. Back in the day when they ruled the insulin pump kingdom Medtronic drove change and innovation. Today they are reacting to change and falling behind on innovation.

“The difference between success and failure often times comes down to salesmanship.”

This is exactly what’s going on at Livongo, OneDrop and just about every company pushing way cool whiz band as a cure all for diabetes. Let’s be very clear here as no one would ever dispute that a more educated patient is more likely to achieve better outcomes. Nor would anyone dispute that coaching can help patients deal with the myriad of variables that impact outcomes. However these companies are not increasing in value because they have found some sort of magic potion or have something truly unique or innovative. No they are increasing in value because they have a great story, the benefit of good timing and lots of very slick salesmanship.

This is to a great extent why so many of the analysts and investor ignore the mundane yet critical factors such as do they make money. This is why the let a company like Livongo get away with their very interesting way of calculating revenue. They ignore the fact that Livongo is not alone in this space and competition will drive the fees they charge DOWN. They confuse clients with actual paying active members.

It’s this last point we’d like to examine further as we have been searching for any explanation as to why Livongo is now worth almost $7 billion. In our quest to find an explanation we have reached out to as many experts as we can find, people who may not be part of our wacky world yet have updated ways of valuing companies. Rather than use traditional valuation methods they believe in today’s internet/digital age these methods are outdated and do not reflect the true value of these companies.

Although we’re giving the Wizard his due today we must bring Mom back as she used to say something is worth what someone is willing to pay for it. Right now people are paying a very hefty price for shares of Livongo. Using any traditional metric this valuation is just crazy hence why we are looking for alternate explanations.

The experts we’ve spoken with for the most part mention how many clients the company has and how this number is growing. Now remember that clients are not the same thing as paying customers. Livongo defines a client as business entities that have at least one active paid contract with the company at the end of a quarter. A paid contract comes from getting employees to sign up for the Livongo platform and then interact with the platform. This is when Livongo begins billing the company the per month per patient fee. This is when REAL money starts coming in the door.

We have consistently stated we could care less how many clients Livongo has what we care about is how many ACTIVE members they have and their ability to attract NEW ACTIVE members and retain existing ACTIVE members. This is how they make money. Yes the more clients the company has the greater the number of POTENTIAL ACTIVE members, so it would be foolish to completely dismiss Livongo’s ability to attract and retain clients. However since these clients do not pay anything to sign up and only begin paying when ACTIVE MEMBERS join the platform using this one metric alone is misleading.

To us everyone is confusing clients with real paying ACTIVE MEMBERS which we consider a much more important metric. Throw in all the way cool whiz band AI+AI, the digital health sector being hotter than Georgia asphalt and the Big MO and that’s how get a valuation of $7 Billion. A valuation that cannot be supported by traditional method. A valuation that as Dad said really comes down to salesmanship.

So to the Wizard and all the Dad’s Happy Father’s Day. And Dad don’t worry that you’re not as famous as Momma Kliff for as you used to say she deserves a medal for putting up with you and us her rambunctious children.

A well-traveled path

As we watch investors boost shares of Livongo to what we believe are unsustainable levels we harken back to the past and remember other times when Diabetic Investor stood alone in the wilderness. This is not the first nor likely will it the last time when we went against the tide. The question is will be right about Livongo or will we eat crow.

The first time this happened came after our very first ADA in New Orleans. Back then Diabetic Investor was a print publication and in an effort to boost awareness we actually had a booth in the exhibit hall. As luck would have it the booth directly across from us belonged to Amira Medical a glucose meter company that offered something called alternate site testing.

As it turned out this was very lucky indeed as Amira was the hottest company at the show and our booth benefited from the overflow crowds. We also got to know many of the folk at Amira and found out that this way cool whiz bang toy really didn’t work all that well. Yet everyone else was falling in love with Amira with one competitor telling us this company would forever change glucose monitoring and would be bought or go public. Everyone believed this would be a billion-dollar company.

Well we went home and wrote that Amira wasn’t all it was cracked up to be. That as way cool as their toy was it would help if the damn thing actually worked. Did Amira go public? Nope. Did they get acquired? Yes Roche came along and bought the company as it was on the verge of collapsing and all they wanted was the IP. Amira this darling of the show turned out to be just what we said it would be, a failure.

We wondered back into the wilderness when Pfizer was getting ready to launch Exubera, the first FDA approved inhaled insulin. Again people were in love with Exubera as they reasoned it would be a surefire blockbuster as patients would no longer have to inject insulin. Analysts were going crazy trying to estimate sales of Exubera some claiming it would reach $4 billion in sales.

Once again we went against conventional wisdom and said Exubera would be a disaster, which is exactly what it turned out to be. Pfizer eventually pulled it from the market and then took a $4 billion write down.

This happened again with Exubera 2.0 when Al Mann started MannKind. Once again everyone was going gaga as Afrezza had a much better delivery system, not the bong like device used with Exubera plus it was a faster acting insulin that worked very well. Shares of MannKind skyrocketed and again analysts were projecting sales of $4 billion or more. Once again we swam against the tide noting that while Afrezza was a huge improvement over Exubera it would suffer the same fate. Which is exactly what happened.

More recently we were both right and wrong about Tandem. This company was on the verge of collapsing and had they not diluted the crap out of the stock they would not be where they are today. We never wanted the company to fail but the truth is the clock was ticking and very close to striking midnight. Tandem is a story of a company who lost their way, had a near death experience then found religion. We were right about the facts and thankfully wrong about them collapsing.

We could go on here as there are other examples besides betting against Livongo we are watching Rybelsus the new oral GLP-1 from Novo Nordisk. The drug works just fine our concern is its rather complex dosing regimen. Will it be the blockbuster many think it will be time will tell we just aren’t as convinced as the analysts appear to be.

Livongo is a much different story as it has all the earmarks of irrational exuberance. We continue to believe there are only two options here, the company gets bought or the share price collapses as results delivered fail to meet results promised. We do not see a third option. Will time prove us right as it has in the past or will Livongo stakeholders be doing a happy dance when a greater fool comes along? Again time will tell.