Day One Recap

Day One Recap

Perhaps the best way to sum up day one of JPM is to look at who won, who lost and who ran in place. So let’s start with whose running in place, which we should note is not necessarily a bad thing. We would say that both Johnson and Johnson (NYSE: JNJ) and Medtronic (NYSE: MDT) fell into the running in place category. Alex Gorsky, JNJ’s CEO gave a cute fireside like chat and like so many skilled politicians talked a lot but really said nothing of substance.

The same can be of Omar Ishrak, Medtronic’s CEO who gave a slightly more detailed presentation but when it came to diabetes the big news was their partnership with the Chengdu municipal government to manufacture and deploy advanced diabetes therapies in Chengdu, China. According to Medtronic 120 million people live in this province and this is just the beginning of their move into the huge Chinese market.

The big loser of the day was Abbott (NYSE: ABT) as they continue to harp the FreeStyle Libre as the savior when in reality this product is nothing more than a false prophet. Keep in mind no matter how much success they claim they are having overseas there is no way ever this product gets approved in the US as it just isn’t accurate enough. We could care less if a professional version gets approval as this market is meaningless. The fact is Dexcom (NASDAQ: DXCM) and Medtronic own the CGM market and its plain foolish, more like stupid for Abbott to compete against them. The fact is Abbott had their chance to own the CGM market, they blew that chance big time and should have NEVER attempted to re-enter the market.

The big winner and it wasn’t even close folks was Intarcia. Not only did they have a spectacular presentation they also demonstrated they get it. Here is just a small sampling of why they get it. First and foremost, the therapy itself is a winner. Since we have written about this before we will not repeat ourselves. Next the company noted the product carries margins near 90% and physicians make money each time they insert and extract the micro pump. The company also revealed that in their pipeline is an exenatide/SGLT2 combination, now this is very early stage but should this develop the product has blockbuster potential.

Now there are some who seem to believe that patients will be averse to anything that has to be inserted in their bodies. We don’t see it this way for several reasons. Yes, there may be an initial shock however this shock will be overcome when the patient discovers- a) the procedure takes about a minute and is virtually painless- b) once inserted that’s it they don’t have to anything else for another 12 months – no pills to take – no reason to measure their glucose – and they just might lose a few pounds to boot.

It won’t hurt either that their physicians will push this product for three main reasons – a) it solves the biggest problem of all therapy non-compliance – b) this is not insulin and there is little risk of hypoglycemia – c) they make money every time they put one in and take one out.

Obviously payors, who as the company correctly notes control this market (another piece of evidence that shows how much they get it) must cooperate and we suspect they will. Why – several reasons – once in the patient it solves the biggest problem there is therapy non-compliance plus with 90% type margins there is room for the company to play the price card.

Yet the company isn’t content with this bounty of goodness and taking a page out of the Novo Nordisk (NYSE: NVO) playbook they are conducting multiple studies versus existing therapy options including one against Novo’s own GLP-1 once-daily Victoza. They also noted that the cardiovascular study has been completed and the system meet all the primary endpoints.

The lone piece of not so good news is they will need to raise more money but given what they have and where they are going Diabetic Investor doesn’t see this a problem. In fact, while listening to the presentation all we could think about was what would happen if a company who wants to jump into the Type 2 market came along and bought Intarcia. A company that already has pump experience yet wants to expand more aggressively into the Type 2 market. It would even help if this company had not just diabetes experience but has the appetite to do deals. Could there be such a company?

Yes, we know it would come at a high price but if Medtronic really wants to play in the Type 2 sandbox wouldn’t it be interesting if they played with what we think will be a huge shovel.  Seriously this product has blockbuster, perhaps mega-blockbuster written all over it.

Good job Intarcia you are clearly the winner of day one and just might be the winner of the entire conference.