Imagine the possibilities

Imagine the possibilities

As everyone knows CGM is rapidly replacing BGM as the standard for glucose measurement. However, this does not mean that BGM isn’t being used anymore, far from it. JNJ was able to unload their LifeScan unit for a little over $2 billion and while not as profitable as it was once was there is still plenty of money to be made selling test strips. The key is as it always has been, massive scale.

While reimbursement has come down this is still a product that is made for pennies and sold for quarters. While it is true that CGM adoption is rapidly increasing there are still millions of patients who remain on a conventional BGM system. Systems which now communicate with the cloud and come with coaching. BGM may be dying but it is a slow and profitable death provided a company has massive scale.

See this is the major problem facing all the way cool whiz bang conventional BGM systems. Systems which claim to leap tall buildings in terms of performance. While we have seen little real evidence of this companies like OneDrop and Livongo continue to raise money. Why we aren’t sure, but they do.

In the past we have noted that besides CGM providing more and better data these companies have another huge problem on their hands, they lack scale and achieving scale isn’t easy. They can tap dance all they want but for all their bluster they have yet to achieve the most important goal, getting tons of patients onto their system. They claim they don’t need scale to make money because they will be paid for results.

That sounds nice, but the fact is that’s also a fool’s paradise without massive scale. Getting paid for results only happens AFTER these results are achieved NOT before. The burden is on the system and it cost money to run the system. Now if you’re a company that has tons of capital you can play this game but one thing Livongo and OneDrop don’t have is tons of capital.

Yet imagine what would happen if a company made a BGM system so cheap they could sell their strips for a fraction of what everyone is charging and still make money. Now imagine that this system comes with coaching plus a built-in distribution network with the ability to reach millions of patients. Let’s not stop there as this system would have instant brand recognition.

But we’re not done yet think of what it would be like if the patient did not have to do anything after they sign up for the system. Strip reorders would be automatically shipped to the patient as the system would know when more strips are needed.

Well folks this is about to happen and happen in a big way as Amazon, yes that Amazon is about to get into the BGM market and do exactly that. It has long been rumored that Amazon was making the deep dive into diabetes and they are about to make a big splash. A splash which will feel like a tsunami for companies like OneDrop and Livongo.

And folks we have news for you this is just the beginning for Amazon. With their recent acquisition of PillPack whats to stop them from supplying these same patients with their meds. What’s even better for Amazon given their already massive scale and existing distribution network is they don’t have to target insulin using patients they can make money going after any patient regardless of their therapy regimen. This as we have noted is another issue with Livongo and OneDrop their systems are targeting insulin using patients and now with the advent of insulin dosing algorithms puts them at further risk.

Who’s to say that Amazon could not come out with their own version of Tyler. Like meters “smart” insulin pens are a commodity which instead of talking to a way cool app could talk to snarky Alexa. Given their reach would it not make sense for either Dexcom or Abbott to hook up with Amazon and become the preferred CGM component for Amazon’s version of Tyler. Would it not also make sense for a company like Companion Medical who has an existing “smart” pen to do the same thing.

The best thing about Amazon is that unlike all the other players in the Valley they aren’t interested in reinventing the wheel. They have no interest in changing the diabetes paradigm. All they want to do is make money. While we would not say they don’t care about patient outcomes we would say they care more about making money. As we have seen before Amazon has the power to enter and decimate a market that was once dominated by brick and mortar outlets.

The biggest problem for our friends in the Valley is they lack clarity of purpose. They want to make the deep dive but aren’t sure what they want to do once they get into the pool. They have all the same advantages of Amazon but unlike Amazon they seem disjointed. This is also another benefit Amazon has as they don’t care if the patient uses an iPhone or Android. Diabetes is not a platform play for Amazon as it is for Apple and Google.

So, get ready my friends as the diabetes pool is about to have a big swimmer.