It was only a “Dream”

It was only a “Dream”

There are certain constants in life. The beauty of Augusta in early April during the Masters. The hope of baseball fans everywhere at the start of a new season. Chicago Bulls fans worried now that Derrick Rose is back when he’ll get injured again. And yet another non-invasive glucose monitoring company biting the dust. Diabetic Investor has witnessed this so many times this type of news has become commonplace, almost a non-event.

Suffice it to say a non-invasive glucose monitoring company going out of business after going through millions of dollars is not shocking. The real shocker would be a company actually succeeding, actually being able to bring such a device to market. We’d like to say that whenever one of these companies fails it becomes a learning event. Sadly this is not the case as investors continue to fund these companies, continue to buy into the dream that non-invasive glucose monitoring is the Holy Grail of diabetes devices. Like so many things in diabetes these investors never let the facts get in the way of a good PowerPoint presentation.

We mention this today as Diabetic Investor has learned that after 25 years and millions of dollars Grove Instruments, a company whose tag line was “The dream of painless, bloodless, noninvasive glucose testing is about to become a reality – with Grove Instruments™ technology.” Has decided to call it quits after failing to raise additional funding.

Now for those unfamiliar with the Grove saga, back in 2008 the company was known as Vivascan, a company which was actually funded back in the early 90’s by none other than LifeScan, the glucose monitoring unit of Johnson and Johnson (NYSE:JNJ). Like so many Grove had an impressive group of people and what many believed to be way cool technology. Like so many the company raised millions as they were ever so close to a major breakthrough.  Yet in the end they were just like everyone else who tried and failed.

This begs the question will investors ever wise up and stop funding these efforts? Sadly we believe the answer is no as evidenced by GE’s $8 million investment into the now dead C8 Medisensors who also had way cool technology and was inches away from the finish line. To Diabetic Investor these investors fall into the classic definition of insanity, performing the save behavior yet expecting different results.

Diabetic Investor has long wondered with all the publicly available information on these failures why smart companies like JNJ or GE continue to buy into the dream. Why with their vast resources do they not thoroughly investigate these companies? The honest answer is they do seek out the advice of high quality individuals who know this space backwards and forwards they just don’t listen to the experts they hired  to provide advice.

Yet non-invasive glucose isn’t the only area of diabetes where this happens this also happens in the diabetes drug space. Chris Viehbacher, the beheaded CEO of Sanofi (NYSE:SNY) went against the advice of his own due diligence team who told him not to partner with MannKind (NASDAQ:MNKD). The same thing is likely to happen after MannKind fails and investors turn their attention to yet another inhaled insulin from Dance Pharma, a company who recently raised a few million. Never mind that to date no inhaled insulin has ever been commercially successful, nope the dream that inhaled is superior to injected is alive and well.

Diabetic Investor senses that next area ripe for rip offs will be the growing interconnected diabetes management (IDM) space. As we noted just yesterday venture capital firms are pouring money into this space. Well you can bet the ranch that some less than reputable companies will come along, build a way cool PowerPoint presentation, convince some respected thought leaders to join their board and tell anyone who will listen that they have a better mouse trap. Given that the reputable companies are already working with the smarter VC’s and knowing how VC’s like to play follow the leader, these charlatans will have no trouble raising money.

Think this won’t happen, take a look at the insulin pump space. Even though this market is dominated by Medtronic (NYSE:MDT) and includes JNJ, Roche, Tandem (NASDAQ:TNDM) and Insulet (NASDAQ:PODD). Companies like Asante and Valeritas were able to raise millions from VC’s and for a moment looked like they were about to raise millions more by going public. The fact that Asante pulled their IPO and Valeritas has delayed theirs won’t stop investors from pouring more money into another insulin pump wannabe.

The common factor between both device and drug start-ups is what Diabetic Investor likes to call the demographic slide. Yes in every one of these very well done PowerPoints is that slide in the deck which shows the epidemic growth rate of diabetes. How one in three children born today will develop diabetes, how the number of patients with diabetes will double by 2025. How diabetes is not just a global healthcare crisis but also a global economic crisis.

This slide serves two purposes, first it shows investors that this is a huge market which is getting bigger and second even though the company may not be huge they only need a small slice of this huge market to be successful. It also plants the seed in investors mind that given the size of this market this company should have no problem raising money, going public and eventually being acquired. For as sure as the sun rises in the east and sets in the west the demographic slide is always accompanied by the cash out slide. The slide that shows investors that JNJ bought LifeScan, Abbott (NYSE:ABT) bought Therasense, Medtronic bought MiniMed, Roche bought Disetronic and Sanofi partnered with MannKind.

The fact is some very smart people get caught up in the dream and lose touch with the harsh realities of the market.  They buy into the belief that non-invasive glucose monitoring no matter the track record will be a huge hit, that patients will regularly monitoring their glucose because they no longer would prick their fingers. This is the same belief with inhaled insulin that it has to be a hit because patients no longer have to suffer painful and embarrassing injections. They delude themselves into believing that even though the companies they are investing in may not be the very best history shows that there is money to be made in the diabetes space.

Yes the greater fool theory is also alive and well in the diabetes space. Given this set of dynamics it’s hard to fault these very smart people from sometimes making very dumb investments. As for every Grove Instruments there is an Animas bought by JNJ. To these very smart people investing in the diabetes space is like playing craps in the casino. While the odds are with the house plenty of money can be made before the shooter craps out. The trick is knowing when to take the money off the table for no run lasts forever.

The simple truth is it’s easier to buy into the dream then to deal with the harsh realities of the market. That sometimes dreams do come true. Yet more often than not those dreams of riches turn into nightmares and Grove is just the most recent example. Sweet Dreams……..