The technical definition of insanity is repeating the same behavior and expecting a different result. The definition of insanity in our wacky world is taking an old technology that didn’t work the first time around, rename it, throw more money at it and expecting it work. Nowhere is this more prevalent than in the growing CGM space. Yes, now that Dexcom (NASDAQ: DXCM), Abbott (NYSE: ABT) and Medtronic (NYSE: MDT) have validated this space everyone wants in.
Helping push this along is the fact that Google, Apple and Amazon are all either partnered with someone, have their own projects underway or both. It doesn’t hurt either that Samsung, Panasonic and just about every high-tech cash rich also want a piece of the CGM pie.
Now to be honest we aren’t sure just how many Dexcom wannabes there are as there are just too many to count. As we noted back during the annual wacky dance in San Diego when we meet with a bunch of these Dexcom wannabes, every single damn one of them thinks they have a better mouse trap. They also share another commonality as each one at some point during their presentation states unequivocally; “Hey we aren’t as accurate as Dexcom YET but by golly we will be soon.”
This quite frankly is the first of many mistakes these Dexcom wannabes make, as they believe the CGM sandbox is all about accuracy, it isn’t. As we have been stating for some time Dexcom may have the most accurate system right now, but everyone is catching up and we will eventually reach the point of diminishing returns. The fact is when they work the Libre and new Enlite sensors are accurate.
Which leads to the second biggest mistake made by Dexcom wannabes, they have no clue whether they can manufacture their system. The problems with Libre and Enlite are directly related to manufacturing issues. The ability to manufacture an accurate, reliable sensor consistently. To do so on a mass scale.
The third mistakes made by these Dexcom wannabes is they haven’t a clue as to how they are going to make money, how they can successfully commercialize their system. They like so many before them believe if they build it people will buy it. They ignore the many real-world obstacles that stand between having a CGM and running a successful CGM company.
Although none will admit it, at least not publicly, they really don’t want to run a successful CGM company. What they want is for someone to come along and provide a liquidity moment. This is not let’s build it and grow it, this is let’s build it and sell the thing to a sucker with bigger pockets than ours.
And surprise, surprise investors fall for this. Yes, investors see what’s happening in CGM and figure someone will eventually come along and buy the company they have just invested in. Only problem is after they get sucked in what happens when the company isn’t bought. Insulet (NASDAQ: PODD) is what happens so is Tandem (NASDAQ: TNDM). These two insulin pump companies are the posterchildren for what happens when a company was built to be bought and isn’t bought. It took years and millions of dollars in additional investments for Insulet to get their act together while Tandem is going out of business. So much for the we will build it they will buy it philosophy.
Now this will sound shocking to many but we could care less how accurate these Dexcom wannabes are or claim to be. This story is no longer just about how accurate the damn thing is. This is a story about can they make it, consistently, reliably on mass scale. Do they any other commercialization strategy other than someone will come along and buy them making commercialization a moot point. Seriously it never seems to dawn on these Dexcom wannabes that hey maybe just maybe the company that is supposed to buy them is asking themselves just that; can we successfully commercialize the damn thing so we make money.
Listen this is what the investors who are looking at Tandem are asking this very moment. If we buy the company and put in a management team that knows what they are doing, can this company be turned around. Sure, they know they can buy Tandem for cents on the dollar but what they don’t know is whether Tandem even with new management can make money. Let’s be clear just so there are no misunderstandings here, these investors are not charitable institutions, they are in this to make money.
Johnson and Johnson (NYSE: JNJ) is facing this same dilemma with their insulin pump unit, Animas.
Now is it possible that one of these Dexcom wannabes becomes a Dexcom? Sure, it’s also possible that if you kiss enough frogs one will turn into a prince. Yep, maybe there is a Cinderella whose foot is waiting for the glass slipper. More likely than not however these Dexcom wannabes are like Humpty Dumpty and all the king’s horses and all the king’s men cannot make Humpty Dumpty whole again.