Get with the program or get out of the way

Get with the program or get out of the way

Aldous Huxley once wrote; “Reality cannot be ignored except at a price; and the longer the ignorance is persisted in, the higher the and terrible becomes the price that must be paid.” Now Diabetic Investor knows Mr. Huxley was not writing about the diabetes market and how companies are dealing with rapidly changing market conditions, but his opinion is spot on as to what’s going on. It doesn’t matter which area of diabetes it is, drugs or devices, the general state of affairs is chaos. It seems that only a handful of companies even understand what’s happening and even fewer have a well thought out strategy to deal with these changes.

At one time it seemed like Sanofi (NYSE:SNY) had a clue and was prepared to become the first major company to sell a complete diabetes management system. Yet this ambitious strategy, designed basically to protect the company for the coming Lantus patent expiration, never came to fruition as the company just couldn’t get out of their own way. This failure to execute has now put the company in a difficult position as the are more vulnerable and less prepared when Lantus falls over the cliff. Whether or not the company can survive this fall, has now become a valid question.

Next there is Medtronic (NYSE:MDT) another company with a dominate market position whose strategy seems to be to do anything they can to allow the competition to slowly eat away at their huge installed base, taking away their bread and butter revenue source. Not content to hold 70%+ of the insulin pump market and treat their existing patients and the people who work with these patients like gold, the company is going out of its way to alienate everyone they can.  Nothing like having outdated technology being replaced by fancier technology which is based in large part on a continuous glucose sensor that really doesn’t work all that well.

Or what about our friends in the glucose monitoring community, who have been run over by the freight train called competitive bidding, many of whom have yet to grasp that it’s next to impossible to make money when the government is paying less than $11 for  a box of 50 test strips. A move which will extend beyond Medicare and make its way into private plans which will only make a bad situation worse. Yep the answer is cut costs, which have already been cut to the bone, even further and while all this cost cutting is going on let’s launch new systems with whiz band technology only handful of patients will even use and won’t do a thing to change declining reimbursement rates.

Let’s not forget about the folks at Novo Nordisk (NYSE:NVO) who are reeling from the FDA’s recent decision not to approve their new latest and greatest insulin’s, which truth be told are nice but nothing all that spectacular, requiring the company to conduct cardiovascular studies. And did we mention the reason the FDA even asked for these studies is that Novo submitted additional data to the FDA, data the FDA did not ask for, which pushed the confidence interval over the limit. Wonder what happened to the genius who made this brilliant decision, this being the wacky world of diabetes it’s a good bet whoever it was they got a promotion.

It would be an injustice  not to mention Lilly (NYSE:LLY) here as like their Indianapolis neighbors Roche, they have taken what was once a legacy franchise, and turned gold into sand. Given the close proximity of the two companies it wouldn’t come as a surprise if management from both companies meets regularly to  discuss who they can screw up even further.  Although Diabetic Investor cannot confirm this, rumor has it that there is bet between these two teams as to which company will reach zero in sales faster. The way things are going it just might end up a draw but that isn’t stopping either company from doing their best to win, after all it’s about the only thing either company has a chance at winning.

No we realize it’s not in the DNA of many of these companies to live in the real world and actually grasp what is going on. That it is far easier and much more enjoyable to live in the past and relive the good old days. To harken back to a time when they actually where developing innovative products, products which made them leaders in the diabetes space and made them respected by their peers.  Sadly those days are long gone and they will never come back unless these companies get with the program and start realizing that developing copycat, late to market, me-too products is not a viable strategy which will return them to their former glory.

That we now live in a world where margins are razor thin and competition is fierce for each and every patient. That innovation is the key even with the risks trying to develop innovative products brings with it.  That its ok, even beneficial to admit mistakes were made, that they have learned from these mistakes and most importantly of all vow not to repeat them.  However as noted earlier this is just not in their DNA, for most of these companies they would rather go broke than acknowledge mistakes were made and major changes are needed. This goes beyond hubris and is just plain stupid.

Believe it or not, the people who invest in these companies are equally to blame. Someone needs to explain to Diabetic Investor how stakeholders in Lilly or Sanofi give management a pass and aren’t demanding action. While it’s sad but true, had the Indianapolis Colts had a poor season, instead of making the playoffs, people in Indy would be up in arms, demanding action and the fact that their coach battled and beat cancer wouldn’t make a difference. Yet when they see either Lilly or Roche report results quarter after quarter, year after year which clearly show the companies are turning large fortunes into small ones, they just shrug their shoulders and say oh well.

As Martin Luther King, Jr. once wrote; “Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity.”