Here Comes OneDrop

Yesterday we learned that OneDrop had acquired the asset of Sano, one of the many failed Dexcom wannabes. According to a story on the Hit Consultant website;

“One Drop has acquired all the assets and intellectual property of Sano Intelligence, Inc. which include Sano’s continuous glucose sensing platform.

One Drop will leverage the acquired assets, including silicon-sensing production infrastructure, to design, produce, and commercialize a painless, silicon-based continuous health sensing platform for use across multiple conditions.”

Now for those unfamiliar with OneDrop it’s one of the many Livongo wannabes. (Not to digress any but have you noticed how many wannabes there are in diabetes.) Except that OneDrop has taken a different path than Livongo, rather than target employers OneDrop using an extensive social media effort goes direct to the patient. In the beginning the concept was very simple, for a low monthly fee give the patient a way cool whiz bang glucose meter (an AgaMatrix meter in a shiny new box) while providing an unlimited amount of test strips.

These customers would become part of the OneDrop social media community sharing their stories and helping each other better manage their diabetes. It was one huge kumbaya moment.

The company has since expanded their original model and per their website now offers;

“Every package includes a Bluetooth-enabled glucose meter and a membership to SugarRx, One Drop’s digital coaching and education program. Bonus: You receive a new meter each year!”

All this for the low price of $22.95 a month.

The deal for Sano makes perfect sense as OneDrop knows that CGM is quickly becoming the standard for glucose measurement. Rather than do a deal with Dexcom or Abbott and have the OneDrop platform work with the G6 or Libre, OneDrop reasons they can make more money with their own CGM.

It should be noted that every conventional BGM company has also seen the handwriting on the wall realizing that CGM will eventually kill their entire business model therefore there has been somewhat of a scramble to acquire CGM assets. Last May LifeScan partnered with Sanvita Medical a subsidiary of Nova Biomedical Corporation to distribute their still unapproved CGM system. Roche has also fumbled about in the CGM space.

Not to digress again but this is the reason there are so many Dexcom wannabes. These companies have seen the CGM market explode. They have watched Dexcom and Abbott gobble up patients by the boatload racking in billions in sales. They also see companies like OneDrop desperate to enter the space which is why they are able to raise money. These investors reason that while these systems may not work it really doesn’t matter as with the CGM market expanding someone will come along and buy the company. Which is exactly what is happening. As we say consistently the greater fool theory is alive and well in our wacky world.

To fully appreciate how wacky this world is Apple, yes Apple the makers of all things way cool whiz bang threw millions at the old C8 Medisensor CGM platform. C8 was one of the many companies attempting to develop a non-invasive CGM. Back in the day C8 bilked $8 million from GE Healthcare then failed but was brought back to life when Apple came along. Apple like GE found out this platform may be way cool whiz bang but has one small problem, it doesn’t work and will never work. Apple has since abandoned their CGM efforts becoming very close with Dexcom a real CGM company.

What makes the OneDrop – Sano deal brilliant is not just OneDrop acquired them for next to nothing. No the real value for OneDrop comes from what was stated earlier;

“One Drop will leverage the acquired assets, including silicon-sensing production infrastructure, to design, produce, and commercialize a painless, silicon-based continuous health sensing platform for use across multiple conditions.”

Just as the folk at Livongo aren’t dim neither is the management team at OneDrop. They know what we know that diabetes may be the low hanging fruit for CGM adoption but as we have stated many times that is just the tip of iceberg what’s above the waterline. Although we have yet to get there CGM can also be used as a weight loss tool. Others believe that  CGM sensor can also track other biomarkers besides glucose a move which would expand the CGM into the stratosphere.

Based on our discussions with the legitimate CGM companies and many experts in the field it is technologically possible for a CGM sensor to measure other biomarkers besides glucose. We have yet to see much movement here, but we suspect there are two reasons for this. First CGM adoption in diabetes while expanding has barely scratched the surface. At the moment CGM is still viewed as a tool for insulin using patients it has yet to penetrate the much bigger patient population, patients who do not use insulin. The other issue is there are no clinical studies we are aware of which show a correlation between CGM usage and weight loss.

We suspect we will see these studies in the future but for the moment CGM will remain a diabetes tool which really isn’t a bad thing as this market has plenty of room to grow.

But let’s get to the real reason this deal was done and yep you probably guessed it by now with the addition of Sano OneDrop is now a more attractive takeover candidate. Once again this all comes down to … wait for it … money. Just as Livongo is banking on the greater fool theory so too is OneDrop. LifeScan now owned by private equity is counting on the same thing. So too is every Dexcom wannabe.

Folks we do not wish to dismiss the value of what OneDrop, Livongo and all the other players bring to patients with diabetes. Each in their own way does add value and can help patients more effectively manage their diabetes. However let’s not be naïve as the true goal for these companies is to build their platforms, capture as many patients as they can and then sell to a greater fool before the house of cards collapses.

We don’t hold anything against the smart people at OneDrop or Livongo they are merely taking advantage of current market conditions. They see opportunity knocking and they aren’t letting this opportunity pass them by. As we have stated these people aren’t dim.

But let’s not think for a moment that money is not the real reason they exist. Yes, they care about patients with diabetes, but they care more about money. They have invested millions and rightfully want a return on their investment. We may not believe their efforts will produce true sustainable improvements in patient outcomes, but this does not mean they cannot or should not maximize their value. This is what makes America great, this is how capitalism works. And as we noted just yesterday the reports of the death of capitalism have been a bit premature.