Lost in the valley

Lost in the valley

We can’t point to a day or event which signaled that companies like Apple, Google and Facebook were making the deep dive into the diabetes. In the beginning and to some extent still today these efforts were considered super-secret. Google was the first high-tech cash rich company to go public with their efforts when they announced the partnership between their life sciences unit Verily and Dexcom and then Sanofi.

Apple hasn’t been as public although they too have been public about their relationship with Dexcom. Which is somewhat ironic as Apple is supposed to be developing a way cool whiz bang non-invasive continuous glucose sensor of their own which if you believe the reports is supposed to become part of their Apple Watch. This super-secret project is likely being kept secret because the damn thing doesn’t work and likely will never work no matter how much money Apple throws at it.

When it comes to Facebook and diabetes all we hear is rumors. It’s seems like a logical move considering their huge installed user base, but no one knows for sure they are doing anything at all in diabetes. Everyone just assumes they are but there is no hard-credible evidence hence all the rumors.

Amazon, which technically is not part of the valley being in Seattle, has been public with their efforts to turn snarky Alexa into a diabetes coaching tool partnering with Merck. It is also widely assumed Amazon will get into the pharmacy business their recent acquisition of Pill Pack adding fuel to this fire. Many also believe Amazon will dive even deeper into the diabetes pool they just aren’t exactly sure how.

Like everyone else when we first learned these non-diabetes high tech cash rich companies were making the deep dive into diabetes we were thrilled. It was as if the pharaoh had freed the slaves and a new day dawned for the millions of patients with diabetes. Everyone believed diabetes devices would become more patient friendly. They also believed that these consumer driven tech companies would understand these people are also consumers of health care.

The general feeling was, excuse the expression, new blood was needed. That the old guard – Lilly, Novo Nordisk, Medtronic and JNJ – had grown a little long in tooth. That they were out of touch, they didn’t understand how the patient had changed from being a passive participant in their health care to an active participant, a consumer of health care.

Back in the day while excited about the entry of these high-tech cash rich companies we noted some trepidation. Yes, they had tons of talent and yes, they had tons of money, but we wondered if they would fall into many of the same traps which hurt the old guard. Would they become fascinated with all this way cool whiz bang technology and forget that all this way cool whiz bang technology is worthless if the patient doesn’t use it.

Would they spend their vast resources wisely or would they chase pie in the sky projects which would be way cool whiz bang but yield little if any benefit for the patient? Would they transform diabetes management or just put old techniques in a shinny new box? Would they be truly innovative and not just in product design but when it came to dealing with payors and motivating patients?

Based on what we have seen to date we can’t say this initial excitement was warranted. Yes, we know these efforts take time. However, on balance what we have seen so far tells us that these high-tech cash rich companies aren’t much different than the old guard. Like many of the old guard they become fascinated with the toys. Like many of the old guard they have become fascinated with way cool whiz bang. It’s almost as if they have forgotten why they dove into this pool in the first place.

From the beginning we have believed the main reason these companies dove into the pool was a platform expansion play. That with the smartphone becoming the hub of the patient’s diabetes management it was all about getting patients to use their platform.

The problem as we see it, the reason these high-tech cash rich companies have not created anything more than lots of white noise is lack of direction. Or more like no direction. As Momma Kliff used to say; “Driving without directions will get you somewhere. Whether that’s where you want to be is another story.”

We further suspect one of two things will happen in the very near future. Either these high-tech cash rich will start acquiring companies and build their diabetes efforts via the acquisition route or they will quietly exit diabetes. We just don’t see a third option as quite frankly with the high-tech cash rich companies it’s either go big or go home. Based on their history they want to enter and then dominate a market. Amazon is, again excuse the expression, a prime example of this go big and then dominate a market strategy.

Given their vast resources combined with the fact their core businesses throw off tons of cash we don’t see many going quietly into the night. Diabetes is not just a chronic disease it’s also a huge and growing market. This is what attracted these companies in the first place; diabetes is a global epidemic. Add in the fact that arrogance is as common in the valley as sunshine and all signs point to converting to a buy versus build strategy.

So, let’s spin the wheel a little and speculate which current diabetes companies will be among the first targets.

1. There is no question in our mind that Dexcom is the most logical target. Not only do they have a great product combined with a great team, they are a true standalone diabetes device play that can be easily integrated.

2. Same goes for Tandem. Yep this company which could have been had for less than $250 million will likely fetch a few billion. Only in our wacky world can this happen.

3. Insulet should be included on this list too. The fact of the matter one very rich high-tech player could acquire all three of these companies and with the right management team in place not just give Medtronic a run for their money but also change the insulin delivery market forever.

4. Although not publicly traded a company like Companion Medical should be thrown into the mix as they bring the “smart” insulin pen that’s a central component for a Tyler.

5. As much as they’d like to be acquired we wouldn’t include Bigfoot on this list as it’s much more likely Abbott will acquire the company.

6. Moving beyond the low hanging fruit it would not surprise us if Medtronic or Roche sold their diabetes franchises to a high-tech player. Roche would like nothing better than to get out while Medtronic may not be able to pass up a chance at a big pay day. The reality is both companies would survive quite nicely without their respective diabetes franchises.

7. Don’t discount the possibility that one player would go hog wild and acquire a drug maker. This my friends is the luxury of having boatloads of bucks.

Here are some additional things we see happening;

A. The Verily Sanofi partnership imploding. Sanofi has a well-documented history of having any partnership in diabetes imploding and we have every reason to believe that history will repeat itself.

B. Amazon will NOT acquire a diabetes device company, they will work with them, but they have no desire to get involved with any product which requires FDA approval. Amazon is much more likely to disrupt the pharmacy side of diabetes delivering medications directly to the patient. Yep it won’t be long before snarky Alexa starts asking patients whether they want to refill their prescriptions when they order more Tide.

C. Apple will eventually realize they have thrown enough money down the toilet with their quest to develop a non-invasive CGM and work more closely with Dexcom. Like Amazon they do not want to make any product which requires FDA approval.

D. Facebook is about the only company we see going quietly into the night. They have the money to play but given their current priorities diabetes is well down on the to do list.

E. All the current diabetes companies, device and drug, will continue to look for ways to hook up with tech. They have come to realize that tech isn’t the threat they first imagined and understand this can be a win win relationship.

As with so many things in or wacky world these high-tech cash rich companies will have a major impact on diabetes just not as we first envisioned. This won’t happen overnight as far too many of them are still lost in the valley. Yet they will eventually find clarity and direction and from there it will be tons of fun to watch. As Momma Kliff used to say; “The promise of drastic change is more fun than realities of real change. Change takes time and does not happen overnight. Yet change is coming. Now whether this change will make a difference or not is another story. But it is coming.”