It could happen in a Flash

It could happen in a Flash

This week the diabetes world is gathering in Munich for the annual European conference so as per usual we should expect more than our fair share of diabetes news. Yesterday the conference got off to a rousing start when Sanofi (NYSE: SNY) and Google officially announced their diabetes partnership, a partnership which will have wide ranging implications across the diabetes world. As we noted yesterday the epicenter of diabetes has moved to the Valley as every tech company seems to be jumping into the deep end of the diabetes pool.

This deep dive into diabetes will create some interesting possibilities as the resource rich tech companies begin to develop and assemble the pieces they need to launch their version of a diabetes management system. Systems which we have noted will include all the items a patient needs to manage their diabetes. Systems which will seamlessly share information via the cloud. The ultimate goal being personalized diabetes management, management suited for each individual patient.

A key component to each system is measuring glucose. This data is needed not just for insulin using patients but for all patients with diabetes. It’s also true that the most effective tool for measuring glucose are continuous glucose monitoring systems (CGMS). As we have been noting CGM will become the standard for measuring glucose within 5 years. It’s just a matter of time before conventional point to point monitors will become obsolete, a relic of the past. This market which at one time was a $6 billion market, has now become a $4 billion market and in 5 years will be just a $1 billion market.

This is where the arms race in diabetes could get very interesting. Google has already aligned themselves with Dexcom (NASDAQ: DXCM) the leader in CGM. Medtronic (NYSE: MDT) has aligned themselves with Watson Health and Qualcomm. These two companies effectively control the CGM universe. This doesn’t leave many options for a company like Apple, who as we have been noting is making a major move into healthcare of which diabetes management will play a very important role.

Apple at one time dabbled in CGM making an investment in the way cool but now way dead C8 Medisensors. However, considering the importance of CGM and given the fact the major players in CGM already have dance partners who’s left for Apple to dance with?

Yes, in a stroke of genius, more like dumb luck, Abbott (NYSE: ABT) could be the bell of the CGM ball. Just yesterday the Lancet published a study which noted patients using the FreeStyle Libre, experienced a 38% reduction in time in hypoglycemia, with no device related hypoglycemia or safety issues reported. The authors noted;

“In summary, use of the novel flash glucose sensor system resulted in a significant reduction in time and incidence of hypoglycemia, without deterioration in HbA1c levels, demonstrating that the system is a safe replacement for self-monitoring of blood glucose and is highly acceptable to individuals with type 1 diabetes. For many individuals, hypoglycemia is a barrier to optimum glucose control. Novel sensor-based systems to monitor glucose hold great promise as an effective alternative to conventional self-monitoring of blood glucose.”

Now before we go on here we know that there are many in diabetes who claim that the Libre is not a true CGM, that it does not alarm nor does it send readings to a smartphone. This may be true but these limitations can be quickly solved as the Libre is based on some truly fine technology and does an adequate job. With some enhancements the Libre could easily become a true CGM and what’s the best way to make this happen? Money. What does Apple have? Tons of money. What does Apple need for their diabetes management system? CGM.

We have long speculated that Abbott CEO Miles White invested in the Libre not because he felt it could become a major product rather it was a way out of diabetes. That someone would come along and buy their diabetes unit because of the Libre. That after running not one but two conventional glucose monitoring companies into the ground he would at long last recoup a portion of the money he spent buying these companies.

And guess what, Abbott also has an insulin pump, another piece of the diabetes management puzzle. Yes, they never launched the damn thing but nonetheless they still have it.

Perhaps the best part for Apple or any other of the many cash rich high tech companies also jumping into the diabetes pool, they could buy the Abbott unit for a relatively cheap price when compared to others in this space. While it’s true that Roche would be happy to sell their unit they have yet to do anything in CGM. They have one but in true Roche fashion they are over engineering the device, which means it will never see the light of day. Money would solve this problem as well and given the wackiness that’s going on Roche too could luck their way out of diabetes.

Now it would seem that if any cash rich tech company really wanted to compete why not buy Johnson and Johnson’s (NYSE: JNJ) diabetes unit. Even with the disaster going on in BGM their LifeScan unit is holding its own. Although it’s never made any money for JNJ, Animas, their insulin pump unit holds the second position in the insulin pump market. The company also has one of those dumb patch pens which would provide an entry into alternate insulin delivery systems. Finally, the company has been developing their own diabetes echo system which would seem to make this jump into the pool easier.

We see a few issues here and not just the multiple JNJ would ask. The Animas Vibe works with Dexcom sensor, Dexcom is already aligned with Google. Yes, LifeScan is holding its own but operates in a dying market. The dumb patch pen really has no fit in the marketplace and is unlikely to be a significant product. And while they are building a diabetes echo system such a system could be easily built by a company like Apple.

If JNJ had the foresight to buy Dexcom things might be different but as it stands today, we just see the JNJ unit having too many issues and is just too expensive to acquire. Talk about real wackiness in many respects JNJ is being penalized because they did too good of a job navigating the difficult trends in diabetes. Abbott and Roche two companies who have royally screwed up their units just might be rewarded because they have done an outstanding job of making them cheaper to acquire. If this isn’t truly wacky we don’t know what is.

The fact is the hardware that makes up the diabetes management system with the exception of CGM is immaterial. Diabetes hardware, insulin pumps, insulin pens, BGM and the like have become interchangeable they all do the same thing the same way. CGM is the exception because accuracy matters an issue that has plagued the Medtronic system.

Looking at this realistically Abbott and Roche both have what any high tech cash rich company needs. Better still they both could be acquired on the cheap when compared to JNJ’s unit. Given where diabetes management is going and who’s entering this space the oldest adage in this wacky world will likely play out more than once. Remember in the wacky world of diabetes anything can and usually does happen even when it makes no sense whatsoever.

Or as Momma Kliff was fond of saying; “Real life is certainly stranger than fiction.”