Medtronic Reports and other items

As we head into the Thanksgiving holiday there is still business to be done unfortunately for Medtronic when it comes to diabetes business isn’t too good. Per their earnings release this morning.

“Diabetes Group second quarter revenue of $574 million decreased 3.7 percent as reported and 5.0 percent organic. Diabetes Group revenue performance was impacted by a delay in new patient starts on insulin pumps and continued competitive pressure. CGM grew in the mid-single digits.”

Include in the slide presentation which accompanied this morning’s call which we DID NOT listen to (hey some things just aren’t worth waking up for at 5am) the biggest news was they have filed their Zeus sensor with the FDA in October. And not to digress or anything but why is their next generation sensor not called Apollo instead of Synergy listen either stick with the Greek God thing or not.

Anyway when it comes to diabetes one-word can be used to describe where Medtronic is for as Professor Hill said they’ve got Trouble with a capital T. Tandem now has the coolest toy in the toy chest. They no longer own the most valuable piece of real estate, formulary position. And while they are making strides to improve their sensors these strides can’t come fast enough, nor will they be long enough to offset what Dexcom and Abbott are doing. The lone possible bright spot could be the InPen and their move into the Tyler market. But overall they’ve got Trouble with a capital T.

Making matters worse with the reemergence of COVID and states reinstituting restrictions things will likely get worse before they get better. The fact is, yes those pesky facts again, Tandem and Insulet have done a much better job of dealing with COVID and have a better rep than Medtronic does within the insulin pump community. Like it or not Medtronic NEEDS the patient to see their physician if they are to acquire new patients while Tandem and Insulet do not. Given the increasing role social media plays in insulin pump selection and the positive feedback generated from Control IQ and OmniPod users this is one more category where Medtronic is also falling behind in.

Speaking of social media we have decided to amend one of our maxims. Many times we have stated that a company can steal more money with a good PowerPoint presentation than they could with a gun. Well given the increasing influence of social media that really should read something like the more a company uses social media to promote their whiz bang way cool toy the more likely it is it will never see the light of day.

Just the other day Tidepool, a major user of social media, announced they were laying off 40% of their staff. The company blamed COVID, but this is only half the story as the real story which contributed to these layoffs was the company failed to deliver on many of the promises they made. If this sounds familiar it should as another social media maven Bigfoot has also failed to deliver on many of the promises they have made. Bigfoot finally got their connected cap cover to the FDA and once again is out raising more money but still after millions raised and lots of hype they still do not have an FDA approved product on the market.

Another company that we see falling into this over hype fail to deliver category is Levels. Now if you never heard of Levels they are a …wait for it .. a bio wearable company specializing in …wait for it … metabolic health. And yep they just raised $12 million to develop this bio wearable. The company of course has a slick web site, a blog and yep is very active on social media. What they don’t have at least not to our knowledge or anyone else who’s following this space is a REAL product.

Oops we almost forgot to mention they also have Podcasts and in case everyone is wondering yes the Wacky World of Diabetes the Diabetic Investor podcast will be launching very soon. We had anticipated an early November launch but given our move to San Diego we’ve had to push it back to early December.

Ok enough of the shameless self-promotion and back to Levels. While it’s possible they may actually have something we shall remain firmly in the skeptical department. We may not be from Missouri, but we do believe in their maxim, show me or as we would say in Chicago put up or shut up. Hey, we might be on the left coast now, but we will never abandon our Chicago roots although we sometimes would like to abandon our beloved Bears, but let’s not go there today.

We suppose at some point investors would learn their lesson. They would stop falling in love with the toys in the toy chest, the shiny new toy, the way cool whiz bang and understand that this is a BUSINESS. A very demanding and very difficult business with high hurdles to overcome. That as one ex-diabetes device executive said comes down to three fundamental truths – can you make the damn thing – can you support it and most importantly of all can you get it paid for.

As true as that may be investors continue to ignore these fundamentals and foolishly throw money into these social media hucksters. Sure once in a blue moon they hit a homerun but more often than not they swing and miss. We saw this with … wait for it… non-invasive glucose monitoring … it happened again with … wait for it … non-invasive continuous glucose monitoring and are now seeing it again with … wait for it … bio wearables.

Folks Momma Kliff has tried to warn investors about these hucksters, but Mom knows that sometimes no matter how many times you tell a child that the fire is hot they sometimes still have to stick their hands in to find out for themselves. Yet what Mom didn’t anticipate was how many times some of these investors would continue to stick their hands into the fire, what’s that old saying about once burned. As Mom once said hey I can only do my best to try and teach and protect you but if you choose to be continually stupid that is your choice.

Have a safe and Happy Thanksgiving everyone.

Super Fight II

Back in March 1971 two undefeated heavyweights meet at Madison Square Garden to once and for all settle who was the heavyweight champion of the world, they called it The Fight. In this first of three epic battle Smokin Joe Frazier was the winner over Muhammad Ali by unanimous decision. Three years later these two boxing icons meet again also at Madison Square Garden this time with Ali prevailing also by unanimous decision.

Given the way things are going with COVID we get the feeling we are now heading into Super Fight II as states reinstate restrictions lifted after the first Super Fight. They do so as promising news comes from the race to develop a vaccine. As it stands today, and this obviously will change, there are several promising vaccines headed for the FDA and some believe by early spring they could be widely available. Be that as it may the numbers are scary as we head into the Thanksgiving holiday traditionally one where families get together for turkey and football.

It should surprise no one as COVID continues to dominate the news that shares of Teladoc which had been falling after the merger with Livongo closed have been rising again. Nor is it shocking that digital health continues to see gobs of money flowing into more deals. Med Tech shares have been selling off as investors seem to wonder whether they can continue to deal with this second round of closings. Simply put investors are concentrating on the here and now rather than on what happens after COVID is gone.

Now some of this short-term focus is understandable as no one really knows what a post-COVID world will look like. Just exactly what the new normal will look like. Will after COVID is gone will people go back and physically see their doctor or will virtual doctor visits become the new normal? Will patients who have become used to filling their prescriptions online and having them delivered to their home continue this practice?

From the onset we have and continue to believe that some of the changes we’ve become used to because of COVID will continue after COVID is gone. That just as we adapted to a new normal after 9/11 we will do the same after COVID is gone.

One thing that will not change COVID or no COVID is competition. While everyone is looking short term we are looking beyond COVID and what we see is an increasingly competitive digital health market. A market which we see being dominated not by all these startups who continue to rake in capital thanks to investors insatiable appetite for digital health deals but by some old school companies who have moved methodically into the digital health space.

COVID may have temporarily changed the dynamics of the game but it has not changed the rules of the game. And in this game the company/platform with the most patients wins. Yes we know that everyone is still fascinated with whiz bang way cool, but whiz bang way cool does not win the game no matter how cool it is. When this is all said and done there will be lots of start-up failures not because they had a bad idea rather because they could not attract enough patients to support their platform.

Digital Health is no different than any other sector of healthcare as it takes real talent to run a commercially viable digital health company/platform and real talent is in short supply.

The question for investors comes down to which time horizon they are looking at. Are they betting on the short term or playing the long game? Our view is that playing the long game with a company like Teladoc is a very dangerous game. That while Teladoc will do just fine while COVID dominates they will have some serious issues once COVID is gone. The rise in Teladoc shares the crazy valuation they placed on Livongo was driven NOT by sound business fundamentals it was driven by COVID.

When COVID is gone Teladoc will face some serious competition from well capitalized competitors who have access to the most important asset, patients. Competitors who will play hardball. The question isn’t if this will happen but when will it happen and how Teladoc adopts to the challenge. Teladoc management has had it easy during COVID the wind is at their back, but the wind will soon be in their face and the calm waters they are sailing in today are about to get treacherous.

Looking at Med Tech we see a far different story as these companies have learned how to adapt to COVID with many of the changes put in place due to COVID carrying over after COVID with long lasting positive impacts. These companies are not playing the short game, they understand that the game is four quarters long and that winners aren’t determined by who’s ahead at halftime.

Folks we know it’s not easy these days that we all want COVID gone. There is nothing we all want more than to get back to whatever the new normal will be. This day is coming even though it seems like some dark days are still ahead of us. Yet as Momma Kliff used to say; :”As bad as it looks today these dark clouds this storm will subside, and the sun will shine again. Nothing good or bad lasts forever so keep your head about you and stay focused on the goal.”

It’s all about franchise protection

This morning Lilly made the following announcement:

“Eli Lilly and Company (NYSE: LLY) and Ypsomed (SWX: YPSN) announced today a non-exclusive, global agreement to advance an automated insulin delivery system as part of Lilly’s connected diabetes solutions. Under the terms of the agreement, Lilly will commercialize the system, which is currently in development and will include an insulin pump developed and manufactured by Ypsomed.”

Now keep in mind this will be the SECOND insulin pump Lilly has, the first not yet launched pump is a Dean Kamen design which Dean has sold more than once. (Nice gig if you can get it.) Lilly also has a Tyler under development also not yet launched. Ironically the Ypsomed pump, which is pretty slick, works with a prefilled insulin cartridge provided by … wait for it … Novo Nordisk. And no we are not making this up.

The reality here is the insulin delivery and insulin markets are combining. As we noted with the recent launch of the InPen from Medtronic the long-term plan for Medtronic is to enter the insulin business with a biosimilar short acting insulin. This is the same reason Lilly and Novo, remember Novo also has a Tyler under development, want to be in the insulin delivery business. Novo however seems content to, excuse the expression, stick with pens rather than enter the insulin pump business.

Given that insulin has become a commodity and that biosimilar short-acting insulins are coming Lilly and Novo are doing whatever they can to protect their insulin franchises. We should note that Sanofi, yes they are still in diabetes temporarily anyway, has a Tyler under development and they actually have a biosimilar short-acting insulin right now.

Here’s the kicker the insulin delivery business is all about scale which begs the question how will Lilly achieve scale in the insulin pump market and how will Lilly and Novo achieve scale in the Tyler market. Let’s take the later before the former as this is an easy one. When it comes to Tyler Lilly and Novo will give away for FREE their connected device and will use their existing formulary positioning to blunt Medtronic’s efforts. When it comes to Tyler it’s not the connected device or insulin that matters, Tyler is all about a reliable/accurate CGM and insulin dosing algorithm.

Now before we go any further let’s make something very clear given that the CGM plays such an important role this combination of the insulin delivery and insulin markets is GREAT news for Dexcom and could be great news for Abbott should they solve the automated insulin dosing issues with Libre2. We should also note that while Medtronic has made strides in improving their CGM sensor it still requires calibration and lags both Dexcom and Libre in terms of performance.

Looking at the insulin pump side things aren’t so clear. Given the critical importance of scale one could argue that if Lilly was really serious about being in this market they would have bought Animas when it was for sale or Tandem when they were on deaths doorstep. That rather than trying to build share, which is costly, time consuming and not guaranteed it would ultimately be more cost effective to buy share. Let’s also not forget that besides having to build share Lilly also must build an insulin pump sales and support infrastructure.

Here is where things could get very interesting Lilly could decide to give away the hardware making money on the continual sale of pump supplies and insulin. They could also work out an arrangement with Dexcom to share in the sensor revenue. This would eliminate the high upfront cost of the pump and force both Tandem and Medtronic to rethink their business models. Payors would love this idea as they really don’t care which system a patient uses they care about money. Remember Lilly isn’t getting into the pump busines to make money per se from the pump they are getting in the business to protect their insulin franchise.

A second possibility would be to adopt a lease versus buy model. Rather than charge for the pump and supplies instead charge one monthly price which would include all the supplies including sensors and insulin. This pay as you go model would be similar to what Insulet does with the OmniPod yet go a step further with the inclusion of supplies and insulin.

To us anyway it’s a non-starter if they adopt the conventional insulin pump business model. Lilly is going to have huge hurdles to overcome and it would be a recipe for disaster if they play on Medtronic’s or Tandem’s turf. Medtronic may be down right now, but they aren’t going to let Lilly establish even a toe hold in the market. Tandem is rolling and they too won’t let this happen either. And it’s worth mentioning that Lilly isn’t the only company who wants to be in the insulin pump business as there are a plethora of OmniPod and Tandem wannabes.

We don’t see this news adversely impacting any of the major established insulin pump companies just yet. Lilly continues to move at glacial speed which combined with their conservative nature gives the established players time to adapt. Yes the insulin pump market is reinvigorated but it is still NOT large enough nor growing fast enough to support all the wannabes who want to play in this sand box.

IF and this is a huge IF Lilly thinks outside the box, if they change the paradigm then maybe just maybe they stand a chance. But this is one huge IF Lilly isn’t known for thinking outside the box or being major risk takers. Just as Dexcom and Abbott are making it tougher on all the CGM wannabes Medtronic, Tandem and Insulet are making tougher on all the insulin pump wannabes.

It will be interesting to see how this plays out, but we see the established players holding all the cards and we don’t see Lilly bluffing their way to a winning hand.

Seen this movie before

Lately it seems not a day goes by without seeing another Dexcom wannabe get funding. The twist this time around is these wannabes are moving beyond the traditional CGM model and into the CGM/diabetes coaching arena. Yep it’s no longer good enough to try and be Dexcom it’s now SOP to be Dexcom plus Livongo. The good news here is that people are beginning to realize that CGM is no longer a tool for patients with diabetes but all patients.

Keep in mind that so far anyway NONE of these wannabes have made it through the FDA. CGM remains the domain of Dexcom and Abbott. Yet as we say far too often this is the wacky world of diabetes where anything no matter how crazy it seems somehow finds investors who fail to perform their due diligence blinded by the toys in the toy chest. These blind mice see the CGM market exploding and figure a rising tide will lift all boats. Never mind that most of these wannabes will sink because they have no clue on how to run a commercially viable CGM company.

We’re also seeing the patient coaching market begin to reposition. The market is subdividing with each platform seeking a niche. Nope it’s no longer good enough to help patients with diabetes. Now these platforms want to prevent diabetes or focus on wait for it … metabolic health. Of course every one of these platforms has something that sounds way cool whiz bang. Something that combines way cool whiz bang with artificial intelligence. Something that at the end of the day is the same shit in different box.

Yet this is what happens when a company like Teladoc is stupid enough to value Livongo at $18.5 BILLION.

To fully appreciate just how off the wall things have become consider this rumor (which is not true and pure BS) that Ascensia is about to buy Abbott’s diabetes unit. Abbott might sell one day but that day is NOT today, and it won’t be to Ascensia if they do sell. Libre is doing great; the market continues to expand, and they have found a somewhat peaceful coexistence with Dexcom. These two companies while paying attention to possible competitors are going about their business, adding new patients and making it tougher and tougher on any wannabe should they make it to market.

And not to get off track but if anyone is going to get bought in this space it will be Dexcom and Apple would be the company making the play. Google/Verily would be a second option but they seem to running around like the Keystone Cops rather than acting like a company with any reasonable diabetes strategy. And no throwing it at the wall and seeing what sticks is NOT a sound strategy at least not in diabetes, toilet paper maybe.

We get that everyone is fascinated with way cool whiz bang, it is fun to dream. In that ivory tower it’s great to pontificate about all the wonderful possibilities. How we are on the cusp of a major advancement in diabetes care. How this time it will be different. Well we hate to break the news to everyone while improvements are happening we have seen this movie before and know how it ends.

As much as these companies think they have the magic potion Ilsa still gets on the plane and Rhett walks out on Scarlet.

Alexa can I have metformin with my Tide

The big news today seems to be Amazon entering the pharmacy business in a big way, a move which really should surprise no one as Amazon didn’t exactly hide what they were doing. Walgreens, CVS and Rite Aid all knew this was coming, were taking steps to deal with it and now have to face the music because it’s here. Again why anyone is shocked at this news blows our minds but then again there isn’t much that shocks us anymore.

Thanks to COVID patients were already becoming comfortable with having their meds shipped to their door rather than making a trip to their local pharmacy. This trend was already in place before COVID but like so many adjustments COVID pushed mail order delivery to the forefront and likely will be one the changes that is long lasting after COVID goes away. There will always be a sub-segment of patients who will want to visit the pharmacy, but it won’t be long before the majority of patients choose home delivery.

To us the real fight will come when these giants Amazon, Walgreens and CVS begin to fight it out in the patient coaching arena. Walgreens and CVS have already entered this arena knowing the importance of the patient with diabetes to their franchises. Patients with diabetes make more trips to the pharmacy and spend more money at the pharmacy than your average Joe or Jane. Walgreens and CVS also have moved into the in-store clinic business allowing them to perform standard diabetic blood work such as HbA1c tests, another boost to their revenue.

Yep right about know you’re thinking wait Walgreens and CVS aren’t the only companies in the diabetes coaching arena Teladoc/Livongo play here as does Onduo as does OneDrop as does UnitedHealthcare as does …. And while some may not remember it Amazon did make a dive into the diabetes pool which unfortunately for them was more like a bellyflop but guess what Amazon has the resources to buy their way back in.

See this is what big companies do when they start thinking since they are good at one thing they of course will be good at all things. We saw this with Apple and their ill-fated attempt to develop a non-invasive CGM. We are watching this right now at Google/Verily as Onduo struggles. When things go bad rather than admit they made a mistake rather than admit they are not good at all things rather than suffer the embarrassment they buy their way out of the problem because they have the resources to do it.

Thankfully for Amazon it’s a target rich environment when it comes to possible bolt on acquisitions and unlike Teladoc they will not be stupid and overvalue a company as they did when merging with Livongo. Seriously with how this market is developing this Teladoc/Livongo merger is looking more and more like one of the dumbest moves of all time and that my friends is saying something. Please explain again why Livongo is worth $18.5 billion, but let’s not digress.

Possible targets depends on how deep of a dive Amazon wants to make. Do they just want coaching, or do they want to add devices to their diabetes offerings? Perhaps they want both and will add wait for it …. LifeScan. Now let’s make something clear here no we do not get a commission when Platinum sells LifeScan although we would happily accept one if they are nice enough to offer. (We are not holding our breath) LifeScan has all the toys – BGM and soon CGM – they have coaching Noom, Cecelia Health and WellDoc and they have nearly 20 MILLION real live patients. Heck Amazon could add in one of the many connected pen companies and let LifeScan develop an Amazon version of Tyler.

Folks we really hate to be captain obvious but when it comes to this space sometimes we have to be. This game is all about patients and the company with the most patients wins the game. It does not matter if the company is filling prescriptions, selling test strips or helping patients better manage their diabetes. We’ve said it before and will say it again because its true scale is critical in this game and Amazon knows this. Scale drives efficiencies which in this ultra-competitive environment translate into profits.

Amazon also has the scale where it could offer its Prime members (and there are millions of them) coaching for FREE. Yep fill your scripts with us, buy your devices from us and we’ll throw in coaching for free. And Amazon really doesn’t have to be greedy as they can easily set it up so Alexa can accept data from other competing devices. Listen Alexa might be a little snarky, but she isn’t stupid, and you just know that Alexa will be hub for all this.

Yep we can see it now….

Alexa: David I noticed your insulin prescription is ready to refilled shall I do that for you?

David: Sure that would be great.

Alexa: I also noticed that since the merger was consummated Teladoc shares seem to be falling more than rising.

David: You are correct

Alexa: Do you think this is happening because investors are finally waking up to the fact that Teladoc vastly overpaid for Livongo and this just might be on the dumber COVID driven deals ever?

David: That is a distinct possibility

Alexa: Yep as Momma Kliff says there is no cure for stupid, and by the way should I throw in some Tide when I refill your insulin prescription.

A Fool’s Paradise

It seems as if Medtronic’s announcement yesterday with the launch of the InPen connected to the Medtronic CGM has created some controversy. Now before we get into this let’s be very clear here this system is NOT yet a full-blown Tyler. It is a first step towards a Tyler, a baby step but a first step, nonetheless. Let’s also acknowledge the obvious right now there is only ONE CGM system that is approved to be used for making insulin dosing decisions, the G6 from Dexcom. Let’s further acknowledge what everyone also knows while Medtronic has worked diligently to improve the performance of their CGM it is still inferior to the G6 and Libre/Libre2.

Now onto the “controversy” many are noting that as good as the G6 is the system does not deliver “real-time” readings, a factual statement. However even if it did when it comes to insulin dosing this DOES NOT MATTER. The reason it does not matter is that the currently available short-acting insulins with the possible exception of Afrezza do not work fast enough. To put this in very simple terms even with continuous insulin delivery via an insulin pump the insulin delivered does not begin working immediately. With a Tyler where the insulin is injected there is a lag time between when the insulin is injected and when it begins to work. Hence the term “time to action.”

Anyone who’s been following the development of closed loop insulin delivery systems will tell you one of the biggest obstacles to having a truly closed loop system is not the hardware, CGM or algorithm it’s INSULIN. It’s ironic that the fastest acting insulin the one with the fastest time to action, Afrezza, cannot be used in a closed loop system. It is also the reason so many patients seeking very tight control have fallen in love with Afrezza as it works very quickly.

Now thanks to insulin dosing algorithms which thankfully are getting better and better, this time to action issue really isn’t much of an issue. Yes it would be very nice IF we had a non-inhaled short acting insulin which worked as fast as Afrezza but it’s really not necessary. It would also be nice if every CGM system delivered real time readings but again it’s really not needed.

The reality here, those pesky facts again tell us that optimal control is not about where the patient has been or where the patient is right this very moment. It’s about where the patient is going. And keep in mind that glucose values are just one of many factors that go into this complex calculation of how much insulin is delivered and when its delivered. Far too many seem to believe that glucose values dictate insulin dosing, yes it’s an important metric but it’s NOT the only metric. Again to put it very simple terms this is like baking a cake, yes flour is an important ingredient, but it is NOT the only ingredient.

The more well informed among us understand that Time in Range (TIR) is a more important metric than one or even a series of glucose measurements. Anyone who doubts this should take a look at the results patients using the Control IQ from Tandem are seeing. Frankly these results are astonishing, and they are being done with existing CGM data (the G6 from Dexcom) and currently available short-acting insulins.

The fact is this brouhaha over whether a CGM delivers readings in real time is much to do about nothing. Like so many things in our wacky world it’s more of a marketing ploy than something of real substance. What truly matters when it comes to CGM is accuracy of data and the reliability of the sensor. This is why the G6 from Dexcom remains the standard by which every other CGM system will be judged against. Abbott has closed the gap with the Libre/Libre2 and coming Libre3 but as we have seen with limitations over automated insulin dosing they have not fully closed the gap.

Medtronic to their credit has acknowledged the issues with their system and while behind they are trying to catch up. As Momma Kliff used to say the first step in solving a problem is acknowledging you have a problem.

The truly laughable part here is to the average patient, not those who are seeking ultra-tight control, these issues don’t matter. What these patients want most, other than not having diabetes at all, is diabetes management without all the hassles and drama. This day is here for patients on the Control IQ and will be here once we have a real Tyler. All this other stuff, all this chatter about real-time glucose readings is just a bunch of white noise.

All these companies who are trying to differentiate themselves are living in a fool’s paradise if they believe the informed and educated among us fall for this bullshit. But the reality is they know this but also know that investors, investors who do not understand the nuisances of diabetes management, or how insulin really works fall for this crap. To the uniformed or uneducated it’s seem logical that real-time is better than a five- or one-minute delay. Hence the reason they pony up millions of dollars.

Folks we’ve said it before and will say it again this is NOT about the toys in the toy chest or the drugs in the medicine cabinet. This is all about the talent, the ability to run a commercially viable diabetes device company. And talent unfortunately is in short supply.

Taking his first steps

It’s been a long time coming but today Tyler is taking his first steps per a press release;

“Medtronic plc (NYSE: MDT), the global leader in medical technology, today announced the launch of InPen™ integrated with real-time1 Guardian Connect™ CGM data. InPen is the first and only FDA-cleared smart2 insulin pen on the market for people on multiple daily injections (MDI). This integrated system now provides real-time glucose readings alongside insulin dose information giving users everything they need to manage their diabetes in one view. Rather than switching between apps, users have the ability to see all their information in real-time, in one view — making it easier to make smarter dosing decisions to manage their sugar levels.”

Now before the folk at Medtronic and Companion start doing a happy dance let’s point out some obvious issues they must deal with none of which by the way have to do whether patients want or need a Tyler (more on that in minute);

1. Without an accurate and reliable CGM Tyler doesn’t walk and folks so far Medtronic hasn’t proven they can make an accurate and reliable sensor and we know they can’t make one that doesn’t require finger stick calibrations.

2. The InPen and its way cool whiz bang app worked with the Dexcom CGM, which is accurate and reliable, before Medtronic bought Companion so while this might be Tyler’s first steps he was already crawling.

3. Nothing is mentioned in the release about whether the InPen app now has the Medtronic insulin dosing algorithm. This is a critical point as one thing Medtronic does know from their long history in insulin pumps is how to develop a bolus calculator. Yes there are differences between continuous delivery of insulin and multiple daily injections (MDI) but this why they employ smart people.

The way the release is written Medtronic is trying to position this systems as a time saving tool for patients making their lives easier by having all this information in one place. While that may be true we see this as a mistake as believe or not MDI patients care about outcomes and if Tyler works as designed they will achieve better outcomes and save time.

We mention this as MDI patients have been using their own version of Tyler for some time. In effect they constructed their own system using multiple apps. Many didn’t need a connected insulin device using either a nonconnected pen or old-fashioned syringe. See what most people don’t understand the benefit of Tyler isn’t way cool whiz bang its better outcomes without much effort. This is what MDI, heck this what every patient wants. They want their diabetes management to be less work less of a hassle.

Now Medtronic has an opportunity to make this happen as one hassle patients have is buying their connected pen from one place, their sensor from another and their insulin yet another. As we noted it’s just a matter of time before Medtronic is in the insulin business. Which means someone using the InPen system would not have to worry about reordering sensors or refilling their insulin prescription as Tyler could do this for them.

So let’s call this news what it really is a baby step and not full-blown walking. Frankly it’s up to Medtronic whether Tyler walks, runs or falls down. For the moment and it’s only a moment they have the only Tyler on the market. Sources tells us that Bigfoot is nearing approval for their way cool whiz bang cap cover, Lilly, Novo Nordisk and Sanofi all have various Tyler efforts underway and let’s not forget the many connected pen cap cover companies who will happily partner with anyone else who wants to have a Tyler.

We hate to be redundant, but the hardware really doesn’t matter the critical components are an accurate reliable CGM which is approved to work with automated insulin dosing systems and an insulin dosing algorithm. Gee Dexcom has both of those things and Abbott doesn’t which makes one wonder but let’s not digress today.

As we noted the other day thanks to social media insulin using patients are seeing from other real patients what’s possible. They are seeing the results from patients using CGM or hybrid closed loop systems and saying, “hey I want that too.” This is why Tyler stands a great chance not because it’s way cool or whiz bang it’s because patients want him, he fills an unmet need in their lives. It is not a solution looking for a problem to solve but a valuable tool that makes managing diabetes less of a hassle.

A sad ending

Many years ago so long ago in fact that not sure exactly what year it was during the annual JPM Healthcare Conference we sat down with a company which had an interesting concept, deliver exenatide via an implantable pump. Listen this was so long ago we’re not even sure if exenatide had been approved by the FDA yet. We listened intently as we were and still are big believers in GLP-1 therapy. What made this concept so intriguing was not the drug being delivered but how it was being delivered.

Whether the so-called experts want to acknowledge it or not any physician will tell you the biggest obstacle to achieving better patient outcomes is therapy compliance/adherence or whatever the current PC term is. As one primary care physician back then said “if these patients would just take their damn pills/shots whatever we’d all be better off.”

With this device compliance/adherence would be a non-issue as once implanted it would deliver exenatide on a continuous basis for six months. Given how exenatide works there would be no fears of hypoglycemia, control would be excellent and there is the added benefit of weight loss. Yet what made us do the happy dance was the simple fact that once implanted the patient did NOTHING, no glucose monitoring, no daily shots, no taking pills zilch nada nothing. It was almost the perfect solution to the biggest problem facing diabetes management, therapy compliance/adherence.

Back then there were still many obstacles to overcome, developing an insertion device that was patient friendly was just one. Still we were impressed but left this meeting with some free advice for these upstarts. Advice we received from another diabetes device executive who has since moved on from diabetes. He stated the three most important aspects for running a diabetes device where the following;

1. Can you make it?

2. Can you support it?

3. And most importantly can you get paid for?

Now for most companies aspect number 3 was the most difficult step. Making it while never easy almost seemed an afterthought as there are many very smart people out there who specialize in manufacturing processes. Support also seemed a low bar as this could be outsourced if need be and again there are plenty of options. However getting it paid for navigating the payor maze was and continues to be one big hassle.

Yet with this company as they developed over the years seemed to be in tune with each step. They brought in some solid management talent, raised a boatload of money and appeared to be headed for stardom. Each year at JPM their sessions had a bigger audience as investors began eagerly anticipating an IPO. This excitement reached a fevers pitch when at long last the company submitted their device to the FDA.

While we didn’t believe approval would be a slam dunk we were very optimistic. The data looked great, they had come up with a slick insertion device and they understood how to get it paid for. The company itself was confident and began building a sales team. All the stars seemed to be aligned which in diabetes is typically when the bottom falls out., which unfortunately is exactly what happened.

Rather than approval the company received the dreaded complete response letter from the FDA. Now this is not a death sentence and others have overcome it but as Momma Kliff would say it wasn’t a goodness. The issue really had nothing to do with the drug being delivered rather the device that was delivering it. More specifically how the device was being manufactured. Frankly this issue made us feel better as we thought ok get some smart on it fix the issue and go back to the FDA.

Well things didn’t exactly go that way. We don’t need to get into all the gory details here in simple terms is what the problem is. Given how exenatide works and the known issues with the drug it’s critical that device deliver a consistent dose. To put it in even simpler terms think of an insulin pump delivering a bolus when the patient says they want 5 units they want 5 units delivered by the pump, not 3 or 7. Well if this device didn’t operate as designed given the known issues with exenatide it lead to adverse events not seen with conventional injected GLP-1’s.

This created somewhat of a viscous circle since the device didn’t operate properly or should we say since there were issues with the consistency of manufactured lots of devices this in turn lead to adverse events. In essence the issues with manufacturing lead the FDA to determine the device was the problem NOT exenatide but the device which delivered the exenatide.

The company did go back to the FDA who again said no, this in turn lead to the company to appeal the decision which is like a football team being down by a touchdown with no time on the clock throwing a Hail Mary into the endzone. Yes there are rare and memorable Hail Mary’s, but they are called Hail Mary’s because 9 times out of 10 they fail. Which unfortunately is exactly happened here as the FDA as denied the appeal and rather than staying in jail this once promising company is headed for corporate boot hill.

Now some seem to believe that even with one foot in the grave this concept can be resurrected, be brought back from the verge of death and have a Tandem like rise from the ashes of near death. Only problem now is the GLP-1 market has changed and there not one, not two but three once-weekly GLP-1’s. Now no injections are better than once a week injections but given the success of Trulicity and Ozempic once a week hasn’t proven to be a problem.

Add in the fact we now have Rybelsus the first oral GLP-1 what would compel a physician to choose an exenatide pump which is inserted in the body. Listen even with a painless and easy insertion, even with all the benefits this device has to offer human nature being what it is physicians and patients would rather take a pill, even one with the somewhat complex dosing that Rybelsus has.

This sad story belongs to Intarcia. The fat lady is singing a sad tune.

Winning the game

In the diabetes device world the maxim is can you make it, support it and get it paid for. In the digital diabetes management world the maxim is all about patients. The platform with the most patients ultimately wins the game. It really does not matter how these platforms make money whether it’s a reoccurring revenue model or pay for performance. Given this maxim it makes sense that the second part of the maxim be patient access, the platform with access to the most patients stands a greater chance of getting these patients onto their platform.

When Livongo began operating the company consistently highlighted the number of clients they signed up. These clients were NOT individuals with diabetes but companies. Once signed up with a client Livongo would then have access to employees who they hoped would sign up for their platform and become members. Livongo would then charge the client a per member per month fee. Analyst reasoned as Livongo signed up more clients they would by default sign up more members. Simply put they had access to a greater number of potential members with each client they signed up.

While this was a reasonable assumption what analysts did not see or failed to recognize was many of Livongo’s competitors had access to a far greater number of patients. They believed that the Livongo platform was unique which in fact it is not. Like so many the fell in love with the whiz bang way cool rather than understanding the basic blocking and tackling of having a commercially successful digital diabetes management platform.

This is the reason we have consistently stated that Teladoc vastly overpaid for Livongo. That had Teladoc truly been interested in making money they could have easily acquired LifeScan a company who not only had all the same tools as Livongo but had something Livongo didn’t have, patients and lots of them. Yes Livongo had some clients but in effect Teladoc chose to build a patient base rather than buy one.

Teladoc is not the only company who chose to build rather than buy as Verily back in the day when Onduo was just starting also passed on LifeScan.

Given that the platform with the most patients wins the game one would think that someone would come along and want to own the over 20 million patients LifeScan has. Keep in mind these are real patients who have diabetes they are NOT possible patients with diabetes.

Another group of Livongo competitors also has access to millions of REAL patients with diabetes, patients who are already indirectly connected to their digital diabetes management platform. Forgotten in this space are three very large well established well capitalized competitors who also want to make money from digital diabetes management. CVS, Walgreens and UnitedHealthcare all have digital diabetes management platforms and all three have access to millions of REAL patients with diabetes. All three also have indirect existing connections to these patients.

During their latest earnings call CVS stated;

“As we noted last quarter we launched our next-generation Transform Diabetes Care program designed to improve health outcomes for many Americans living with the condition. Of the 34 million with diabetes nationwide, 1.5 million are Aetna members, over eight million Caremark members, along with 5.5 million customers who fill diabetes prescriptions at a CVS Pharmacy.”

In their earnings call Walgreens noted;

“myWalgreens will be heavily focused on health and well-being with content, services and offers specifically curated to each member. All of our 100 million existing loyalty members will have the opportunity to convert their current points balance to Walgreens Cash while seamlessly switching to the new program.”

UnitedHealthcare stated;

“Our growing therapeutics capacities are positively impacting the management of chronic diseases. With the introduction of Level2, a digital therapy developed to improve the lives of the 30 million people with Type 2 diabetes, we are helping patients move toward remission of the disease.Level2 uniquely measures signals and applies artificial intelligence, engaging people and producing better health outcomes.”

At last count United had approximately 45 MILLION covered lives worldwide.

Now it stands to reason in this race to capture as many patients as possible companies who already have established patient bases have a huge advantage over one’s who must build their patient base. Going back to when BGM was growing at double digit rates we used to say it’s much easier and more cost effective to buy patients then it is to build a patient base. This also applies to digital diabetes management. Which is another reason we could not understand why Teladoc paid $18.5 Billion for Livongo diluted their existing stakeholders and still had to spend more money to build a patient base.

It’s time to understand that the digital diabetes management space is still in its infancy. That Teladoc/Livongo may be getting all the attention but that does not mean they do not have existing competitors who stand a far better chance at winning the race. These competitors may not be whiz bang way cool, but they have access to millions of REAL patients which in this game is way more important than whiz bang way cool.

Digital diabetes management is no different than any other segment of the diabetes market. It’s not and never will be about whiz bang way cool it’s all about patients and the company with the most patients ultimately wins the game.

What it means

Before we get into our initial analysis of what this election means for our wacky world a huge shout out to everyone who voted. No matter which side of the aisle you sit on you have to be proud of America. In the midst of a pandemic people voted in record numbers. Let’s extend that shout out to pole workers, election officials and anyone else who help keep democracy alive. While it took a while to get the results, the voters have spoken so congrats to President-Elect Biden and Vice President Elect Harris.

Just what will a Biden/Harris administration mean for the wacky world of diabetes depends greatly on the final results for the Senate and let’s not forget the Supreme Court. This is still a divided country although we do see some common ground on issues such as drug prices and pre-existing conditions two areas critical to patients with diabetes.

Now at first glance some would say this is going to be bad news for Lilly, Novo Nordisk and Sanofi the three major insulin companies. We don’t see it that way as insulin has already become a commodity. For years now net prices for insulin have been declining. Add in the fact we will soon have multiple biosimilar short-acting insulin’s which will dampen prices further. The simple fact is for Lilly and Novo anyway is they are now GLP-1 companies first and insulin companies second.

Anyone who didn’t believe this should be convinced as Novo just spent almost $2 Billion to acquire Emisphere Technologies, the company behind Novo’s orally delivered GLP-1 Rybelsus. The reality here is that the GLP-1 market continues to expand, remains profitable and is years away from any biosimilar competition.

In terms of medical devices the outlook is less clear. With the House belonging to the Democrats and Senate likely remaining with the Republicans we don’t see any drastic changes. Like it or not the American healthcare system as broken as its is cannot be fixed overnight. Drastic changes such as Medicare for all might be appealing to some but is very difficult to implement. Our best guess is that President Elect Biden will try and fix Obamacare rather than start all over.

The biggest unknown given that President Elect Biden will take office in the midst of a pandemic is what this means for digital health. Here as well we see market forces having a greater impact than possible legislative efforts. Thanks to COVID digital health is here to stay no one disputes this fact. The question as we have been saying all along is to what extent digital health is used AFTER COVID.

As we written before early indications are that when COVID is over people will still use digital health occasionally. It will NOT however replace visits to the doctor’s office as so many seem to believe. The biggest positive impact has already been seen with companies like Tandem and Insulet who in the midst of the pandemic have successfully transitioned to a virtual on-boarding experience. The next step will be converting patient support functions to a fully virtual experience. Like it or not the days of a patient actually talking with a human are coming to end.

Another area where market forces will play a larger role than who’s in the White House is for companies like Teladoc/Livongo. As we’ve been writing digital diabetes management is becoming an increasingly competitive environment. This increased competition will change the very nature of how these services are paid for. This conversion has already begun with several companies already offering programs for FREE only getting paid for verifiable improvements in outcomes rather than the monthly per patient fees. This reoccurring revenue model which vaulted Livongo to being valued at $18.5 Billion is already on its way out.

There is no question a Biden/Harris administration will be vastly different however given all the forces at play we don’t see any major drastic changes. Market forces combined with the how companies have adapted to COVID will likely have a greater impact on the future.