More decisions to make

This morning everyone learned that Cigna is buying Express Scripts in yet another sign of just how dramatically the world of healthcare is changing. This follows the hookup between Aetna and CVS Health and news that Amazon, Berkshire Hathaway and Chase are hooking up to provide health coverage to their employees. While there are several reasons for these moves the bottom line here is the bottom line, healthcare costs continue to spiral out of control. We haven’t a clue as to how these moves will impact our wacky world but no doubt they will.

Our initial reaction is that the drug makers will feel the impact as these new larger entities will demand greater price concessions. This in turn could prompt a wave of consolidation as drug companies look to get larger too.

A secondary possibility could be that something we wrote about just yesterday could happen sooner than we anticipated as outcomes-based reimbursement could become the tool these new larger payors use to drive cost out of the system. We could be headed for the day when drug companies are paid based on performance.

Thirdly these moves could also prompt another move we talked about yesterday with drug and device companies going 100% at risk.

Add it all up and what we have is some choices must be made by drug companies. As it stands in our wacky world Lilly (NYSE: LLY) seems to have made theirs as they are expanding beyond drugs and into devices. Although we aren’t sure their much-hyped move into the insulin pump market will prove successful they are doing something and not just sitting around.

With Lilly moving into devices the question becomes will Novo Nordisk (NYSE: NVO) or Sanofi (NYSE: SNY) respond and play follow the leader. Based on recent comments made by Novo we’d say their decision is not whether to move into devices per see rather whether they want to remain in the insulin category. While we don’t see Novo abandoning this billion-dollar franchise we can see them deemphasizing insulin in favor of their expanding GLP-1 platform. The GLP-1 market continues to expand, and Novo has the oral version of semaglutide coming.

Sanofi for their part has Amedlog and could use this drug to disrupt the short-acting segment as Lilly used Basaglar to disrupt the long-acting segment. Sanofi also has their agreement with Verily and while this partnership appears to be struggling devices are in the mix. The real question for Sanofi hasn’t changed however in that can they be more than just a bank. Can they do more than throw money around?

Let’s be honest should these or any company want to move aggressively into devices there are plenty of companies to choose from. In the insulin pump space Tandem (NASDAQ: TNDM), Insulet (NASDAQ: PODD) and Bigfoot would be delighted to do a deal. Although Dexcom (NASDAQ: DXCM) is already aligned with Google there are plenty of Dexcom wannabees who would like nothing better than to be acquired. In the “smart” pen arena there are plethora of companies to choose from.

From our perspective we’re wondering if any of the larger players will be bold enough to develop a full-blown diabetes management system. Will anyone dare to depart from the past and not just go big but go HUGE.

Frankly we don’t see anyone from the old guard getting the memo there is just too much institutional inertia. However, we can envision Google, Apple or Amazon making such a move. Of the three Google is the closest as they already have a deal with Dexcom and while struggling they also have OnDuo which recently launched their program albeit on a very small scale.

Both Apple and Amazon are making the deep dive just at different ends of the pool. While we see Amazon making a splash it won’t be developing their own diabetes devices. We can see them partnering and distributing devices and supplies but we cannot envision them getting into manufacturing. Apple on the other hand has been public about diabetes devices but seems to be playing both sides of the aisle. They have invested in the whiz bang way cool non-invasive CGM which doesn’t and likely never will work. Yet at the same time have been very public about their relationship with Dexcom.

Frankly we have no idea how all this will turn out about all we know for sure is that change is underway. Change that will impact all the companies in our wacky world. Yet when it comes down to who will win and lose nothing has changed as it’s all about leadership, vision, talent and yes, some Chutzpah. As Momma Kliff used to say; “Change is a constant. The question isn’t whether change will happen, it will. The question is how people deal with change. This is what separates the winners and losers.”