Flush with cash
One of the more intriguing aspects of high tech companies such as Apple, Google, Microsoft and Facebook moving aggressively into the wacky world of diabetes is the how each newcomer is developing their strategy. As we witnessed just yesterday when Dexcom (NASDAQ:DXCM) hooked up with Google, a popular strategy is partnering with existing players already in diabetes. Yet at some point Diabetic Investor believes these high tech players who are flush with cash will eventually move beyond the partnering strategy and start acquiring diabetes related assets.
Perhaps the best way to look at this is these tech companies are now in the learning phase. During this phase it makes sense to partner as these partners can help the newcomers understand this wacky world. Although we have no way of knowing this for certain but we believe one reason Google partnered with Dexcom was not just because Dexcom is the leader in continuous glucose monitoring but also because Google’s has liked learned their contact lenses that are supposed to measure glucose isn’t viable in the long run.
However at some point, which we believe is coming sooner than later, these tech companies will move beyond the learning phase and begin assembling vertically integrated diabetes management solutions. Diabetic Investor has long believed that at some point in the future patients will be prescribed diabetes management systems rather than individual pieces of the system. Something we see as even stronger possibility given the emergence of interconnected diabetes management (IDM) combined with outcomes based reimbursement.
IDM does not just offer the possibility of better outcomes but also more cost effective diabetes management. Here are just a few examples of why IDM is cost effective. TelCare, Livongo and iHealth are just a few of the glucose monitoring companies which have built systems which transmit data to the cloud. Data that not only can be analyzed but also tell each company when it’s time to ship the patient more test strips. In effect these companies can eliminate the middleman and sell test strips direct to the consumer.
This system also can be applied to injectable drugs as well. With the advent of “smart” pens an insulin and/or GLP-1 company can follow the same model. Think of how easy a patient’s life could be if Walgreens for example offered such a system as they could automatically ship the patient refills.
Looking into the future diabetes management systems will expand well beyond traditional drugs and devices. Systems will include apps, virtual coaching, virtual doctor visits and/or consultations with an educator. Diabetic Investor can envision a system that comes with tiered pricing structure where a patient can chose which level of support they need. The higher the monthly fee the greater the level of support.
Who better than high-tech companies like Apple and Google to build and manage these systems? Who better than Apple, Google or Facebook to apply sophisticated analytics to the huge volume of data generated from these interconnected devices? Which companies are experienced in data security?
Companies such as Dexcom, Medtronic (NYSE:MDT) and Johnson and Johnson (NYSE:JNJ) might understand diabetes devices but lack the scale and experience to build complete diabetes management systems or at least the systems that will be used in the future. The same is true for Novo Nordisk (NYSE:NVO), Lilly (NYSE:LLY) and AstraZeneca (NYSE:AZN) who know diabetes drugs but are not skilled at using IDM.
The reality is the hardware and drugs in diabetes have become almost interchangeable, yes there are some minor differences but nothing major. As we have said many times whether it’s a glucose monitor or insulin pump they all do basically the same thing the same way. The same can be said on the drug side given the many offerings in each category. Does it really matter for example which once-weekly GLP-1 a patient uses, we think not.
By our way of thinking it’s just a matter of time before these cash rich high-tech newcomers move beyond the partnering phase and begin acquiring diabetes assets. The first phase of this will most likely involve acquiring device companies if for no other reason than its easier and cheaper to buy share rather build it from scratch. Although we don’t envision, at least for the moment, any drug related acquisitions we do however see some interesting partnership opportunities. We could see for example Lilly becoming the preferred drug provider for the Google diabetes management system. Just as drug companies compete for formulary placement today, in the future they could also be competing to become the preferred drug provider for a diabetes management system.
As we noted yesterday the next battleground in diabetes is not better drugs and/or devices. No the next battleground in diabetes is turning patient generated data into patient actionable information. In the future data will become a driving force determining everything from which drugs a patient uses to how much this patient pays for health insurance. It really won’t matter much which devices a patient uses as long as they are safe, efficacious and of course deliver data to the cloud.
Just as Google, Apple and Facebook have changed the way we communicate, the way we work, when and how we receive information – basically changed the way we live our lives- they too will change how diabetes is managed. Change is on the way or as some would believe a revolution is coming to this wacky world and as Thomas Jefferson noted; “I hold it that a little rebellion now and then is a good thing”.
