In the blink of an eye

In the blink of an eye

Having been around this wacky world for more years than we care to mention, we have seen several transformations. When Diabetic Investor began publishing some 20 years ago people where just beginning to see diabetes as a major growth area. The disease was growing at epidemic rates, new technology was just beginning to emerge and some exciting new drugs were coming to market. Yet even then storm clouds loomed on the horizon. We noted that if glucose monitoring companies were not careful this market would commoditize, which is exactly what happened.

Next we issued the same warning to drug companies, noting that if they did not get away from me-too, copycat drugs that were just incrementally better than what already existed they too would see their market commoditize, which is happening right now.

Today we’re seeing the introduction of interconnected diabetes management (IDM), big data, predictive analytics and artificial intelligence. And yes these markets are also quickly commoditizing.

These changes are forcing many of the legacy franchises to make some very difficult but necessary decisions. Novo Nordisk (NYSE: NVO) is in the midst of downsizing, aligning costs more closely with the new realities of the market. Lilly (NYSE: LLY) has decided to become ultra-aggressive favoring share over larger margins. Sanofi (NYSE: SNY) is imploding, struggling to find any strategy that will stop the bleeding, unfortunately there isn’t one. AstraZeneca (NYSE: AZN) is at the crossroads and should sell their unit but can’t seem to come to grip with this fact.

On the device side things aren’t much different. Johnson and Johnson (NYSE: JNJ) as smart as they are just can’t decide whether to go big or go home; there is no third option. Roche has basically thrown in the towel by spinning off their unit. Abbott (NYSE: ABT) has some of the pieces of the puzzle but these pieces fit better elsewhere and it remains to be seen if Miles recognizes this or whether he’s still living in some sort of fantasyland.

Medtronic (NYSE: MDT) seems on the right track yet it remains to be seen if a company whose DNA is in intensively managed patients can become a complete diabetes management solution. Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD) are facing tougher market dynamics. While Dexcom (NASDAQ: DXCM) continues to set the standard for how a diabetes device should be run.

The key question facing every one of these companies is can they manage the transition that is now underway. Can they accept the fact that the epicenter of diabetes is now located in the Valley? That companies like Google, Apple and Samsung will be the leaders of the future. That when it comes to diabetes management isn’t not about individual drugs or devices but comprehensive interconnected systems.

We mention this as based on history these legacy franchises have been more reactive then proactive. Rather than drive change they react to change. We cannot emphasis this enough as the Valley is the exact opposite. These companies don’t need to be in diabetes but want to be in diabetes. Unlike the legacy companies who are dependent on diabetes the Valley companies have the luxury of not just huge amounts of cash but other franchises which drive growth. Simply put the Valley has time on their side while the old guard does not.

The harsh reality is looking down the road it’s difficult to imagine some of these legacy franchises remaining in diabetes. The fact is companies like Sanofi and AstraZeneca just aren’t equipped to deal with this most recent transformation. The same can be said on the device side with the possible exception of Medtronic and Dexcom. The central fact is JNJ, Roche and Abbott all have some serious decisions to make and given what we have seen so far the only decision they have made is no decision at all.

The irony here is the transformation that is currently underway did not happen in a blink of an eye. That had these legacy franchises bothered to open their eyes the mess they are in today could have been avoided. This is what happens when events drive decisions, when you allow others to drive change instead of being change agents.

Now we should note that not every legacy company will vanish from diabetes, the stronger will survive albeit in a different form. The weaker players will do their best to remain relevant but will eventually fall by the wayside; not without plenty of pain and suffering along the way. It’s time all the legacy companies realize that their day in the sun, as leaders in diabetes are coming to an end. Failure to acknowledge this fact will have dire consequences.