Looking Deep Into the Crystal Ball

Looking Deep Into the Crystal Ball

Alvin Toffler once wrote; “Change is the process by which the future invades our lives.” Although Mr. Toffler wasn’t writing about the wacky world of diabetes his comment is spot on.  As we noted just yesterday sometimes change is driven by poor performance while other times change is driven by market dynamics, still other times it’s driven by a combination of two. The key for companies in this wacky business is to not just anticipate and plan for change but to actually execute; execution is where the rubber meets the road.

Looking deep into our crystal ball Diabetic Investor believes we are reaching an inflection point in the diabetes market. One side there are several companies who are developing exciting, innovative products which could change the way diabetes is managed. On the other side there are the cold almost cruel realities of the diabetes market that can stifle these products, sucking the air right out of the balloon before it gets a chance to float.

The market for interconnected diabetes management is a perfect example of this. There are a plethora of new devices which interact with a patient’s smartphone allowing the patient to easily share data with their healthcare team. It would be a mistake to believe that glucose monitors are the only products that fall into this category. Given the growing popularity of wearable technology; technology which measures everything from how many steps a person takes, their sleep patterns and weight Diabetic Investor envisions the day when all this data will be combined giving the patient a much clear picture of how they are doing.

Now there are some who will argue that the average patient will be unable to handle all this data that its data overload. This is understandable considering the majority of patients don’t measure their glucose values regularly for most don’t understand what to do with the data. As we have noted before pain is not the reason patients don’t test, they don’t test because there is no value to the data gathered. Yet in the future when all this data is being gathered it will come with an analytical component which will assist and guide the patient.  This is why interconnected diabetes management offers so much potential, done correctly it will help the patient understand not just what’s happening more importantly it will help them understand the data. This is the reason major technology companies like Apple, Samsung and Google are all working various diabetes related technologies, technologies which marry a device to analytical tools.

Even with the all potential for interconnected diabetes management in the real world where change is welcome but also takes forever the cold cruel world stands in the way of seeing these innovations reach the patients who would benefit from it. Let’s start with cost. As we have noted on more than one occasion the conventional glucose monitoring market is dying a slow and very painful death. Even before competitive bidding this market was on its way to disaster, all competitive bidding did was – excuse the pun- push the market over the cliff.  Looking over many of the new technologies they are coming to market at a significantly higher price point at a time when payors are cutting reimbursement.

When asked about this dilemma many of these newcomers say this will be overcome because the technology is so good patients will pay for it. That may true but using history as a guide it’s certainly not the norm.   Yes there always be a minority of patients who will want the latest greatest technology and have the means to afford it no matter what it costs. Yet for the vast majority of patients this is not the case. Just look at what happened to the way cool and now way dead iBGStar from Sanofi (NYSE:SNY), a product which came to market with limited reimbursement options. The harsh reality was that even though the device worked with the way cool and way popular iPhone patients weren’t willing to spend $100 for it.

Yet cost goes beyond what the patient will pay for new technology, companies developing this technology face huge costs proving the benefit of this new technology. The party line when it comes to diabetes management is that outcomes rule that better patient outcomes lead to lower costs over the long run. The theory is that once these companies prove that this technology produces better patient outcomes payors will reimburse for it. Diabetic Investor sees two problems with this theory. First there is huge cost associated with proving that a technology leads to better outcomes and second, as much as we hate to say this its load of horse manure to believe that payors care about outcomes. The harsh reality is for the majority of payors there main focus is to make money and the goal isn’t better patient outcomes but managing their diabetic population as cheaply as possible until they move to Medicare.

Just take a look at what’s happening right this very moment when payors in an attempt to lower costs are increasing patient co-payments for testing supplies. In won’t be long before they take the next step and stop reimbursing for non-insulin using patients. For every study that shows that more frequent testing leads to better outcomes there is another that shows for non-insulin patients more frequent testing doesn’t matter at all. It is these studies that provide payors with the cover they need to stop reimbursing for non-insulin using patients.

Another factor which will increase cost for these newcomers is the FDA. Companies like Apple and Samsung live in a world with six month product cycles and like it or not the FDA doesn’t do anything in six months. Diabetic Investor would pay good money to see the look on the faces of the folks at Apple or Samsung when the FDA asks them to conduct a study for a situation that happens once every hundred years. This is exactly what happened to Intuity Medical, who’s Pogo all in one glucose monitor remains bogged down at the agency. Unfortunately for the folks at Intuity the FDA in their attempt to cover every possible contingency, even ones that seem crazy, asked the company to conduct more studies. As we have written in the past, it really doesn’t matter if what the FDA is asking for makes any sense at all, given they are regulatory body that holds the keys to the kingdom better not to fight city hall.  And people wonder why so many experienced executives in the diabetes device world walk around with this crazy look on their faces but we digress.

Yes the agency has recently shown signs they are moving into the modern world but change at the FDA like the regulatory process itself moves slowly. This is one reason why so many companies are launch products in Europe where the regulatory environment is more reasonable. Still when it comes to diabetes North America is the market companies must play in if they stand any chance at making a profit. It’s true that markets such as China and India offer huge potential but these markets are still in their infancy and it will be years before they can match what’s available in North America today.

This is why the wacky world of diabetes has reached an inflection point, a fork in the road. There is no question that interconnected diabetes management has the potential to dramatically change diabetes management. That when used as intended patients stand a much better chance at achieving better outcomes. Yet on the flip side current market dynamics stand in the way of getting this technology to market. The $64 question is; is there a technology or company that can break through these very real impediments to innovation. Will the diabetes device industry, which must now include companies like Apple and Samsung, push for desperately needed reform.

Diabetic Investor sees the very real possibility that companies like Johnson and Johnson (NYSE:JNJ), Roche, Abbott (NYSE:ABT), Bayer and Medtronic (NYSE:MDT) will decide that it’s just not worth it, that it’s time to exit the diabetes device market. These experienced companies know all too well that the party is over and as fun as it was the hangover has begun. They have been waiting for years for reform at the FDA. They have seen margins shrink with ever intensifying price pressure.

Looking deep into the diabetes crystal ball Diabetic Investor suspects years from now when we’re writing about the leaders in the device market it will sound like a who’s who of what is now known as the technology market. It will be names like Apple, Samsung, Google, Microsoft and yes even Facebook. That interconnected diabetes management in some form will be almost commonplace, it may not and likely won’t be what we see today, but it will be here.

As Peter Kropotkin wrote way back in 1911, “Like all evolution in nature; the slow evolution of society is followed from time to time by periods of accelerated evolution which are called revolutions.”  To be quite frank and to paraphrase Thomas Jefferson when it comes to the diabetes device sector a little rebellion now and then is a good thing.