Out of the darkness into the light
We’ve known for some time the diabetes landscape is in the midst of yet another transformation. The business of diabetes is no longer the domain of just drug and device companies. As interconnected diabetes management (IDM) takes hold a new, very powerful set of companies are entering this wacky world. Apple, Google, Samsung and Facebook are just a few of the newcomers who have entered this wacky world. It goes without saying that these high tech, cash rich companies have the opportunity to forever change how patients manage their diabetes.
This is why we took great interest in a blog post by none other than by Alphabet (the new corporate name for Google) president Sergey Brin. Mr. Brin stated; “I am delighted to announce that the life sciences is now ready to graduate from our X lab and become a standalone Alphabet company.” Mr. Brin went onto state; “They’ll continue to work with other life sciences companies to move new technologies from early stage R&D to clinical testing …and, hopefully… transform we detect, prevent and manage disease.”
It was equally interesting that just today Samsung noted how they are working with Medtronic (NYSE:MDT). The company specifically mentioned how this partnership will “improve care for diabetic patients, delivering more discreet and convenient access to personal diabetes data is critical. Samsung and Medtronic recently announced a partnership to deliver more discreet and convenient access to personal diabetes data by developing mobile applications optimized for Samsung mobile devices that will enable the viewing of insulin pump and continuous glucose monitoring (CGM) information. This application will work with Medtronic’s MiniMed Connect product, which provides easy access to important diabetes information for people with diabetes as well as remote alerts for their loved ones, and is expected to be available in the United States later this year.”
Given that Google has a partnership with Dexcom (NASDAQ:DXCM) the leader in continuous glucose monitoring, the competitive landscape in the diabetes device arena extends well beyond the traditional players. The reality is when it comes to diabetes devices the story is no longer about which company has the best hardware. With companies like Google and Samsung now in this arena the story is about software or more accurately how to transform data into action. We would not go as far and state that the hardware is immaterial rather that hardware not coupled with software is becoming obsolete.
This change to the landscape also presents an interesting challenge to companies like TelCare, iHealth and Livongo. While all of these companies have interesting product offerings they lack scale and as we have been stating when it comes to glucose monitoring in particular scale is critical. One could argue that these companies have “better” products then say a LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) or Roche, but they lack the scale to be competitive. We may be moving towards outcomes based reimbursement but we are not there yet which basically means these smaller companies must find a way to make money in a market where prices continue to decline.
What companies like Google and Samsung have learned is that it’s better to partner with established companies who have scale then work with smaller players and build scale. This puts smaller companies at a huge competitive disadvantage as it’s equally true that a company like LifeScan can easily reconfigure their products to be cloud enabled. Again the story isn’t about which meter a patient uses as long as that meter can transmit data to the cloud.
Of the three better known newcomers Diabetic Investor would give iHealth the edge for no other reason than their hardware is cheap. Unlike TelCare or Livongo the iHealth system works with a smartphone. While the TelCare and Livongo systems have many compelling features these features can be easily and cheaply replicated on a smartphone. Again this not about data collection or even data transmission, this is about transforming data into patient relevant actionable information.
This is why the efforts of Google, Samsung and Apple are so exciting as these high tech companies bring with them a deep understanding of how not just to gather data but what to do with it. Unlike traditional diabetes device companies who view the hardware as the end all be all, these high tech companies view hardware merely as tool which is part of an overall system. It’s the system not the hardware that’s the end all be all.
For years Diabetic Investor has been predicting that in the future patients with diabetes would no longer be prescribed individual pieces of the system. Drugs from one company and devices from another. No in the future physicians will prescribe a diabetes management system which includes everything the patient needs to manage their diabetes. Back in the day before the advent of IDM we thought such a system would include drugs and devices. Today this system thanks to IDM will also include apps, telehealth services and outcomes based incentives.
Should this sound like a dream, something that’s more of a wish then a goal, think again. Years ago JNJ partnered with Novo Nordisk (NYSE:NVO) on the InDuo which combined a JNJ glucose meter with a Novo insulin pen. While the device never caught on it did mark the first, albeit ill-conceived attempt at a diabetes management system. It should also be noted that prior to the Sanofi (NYSE:SNY) diabetes franchise collapsing their entire strategy was to build a diabetes management system.
Today thanks to advanced technology we have a plethora of devices which transmit data to the cloud and not just meters, pumps and CGMS. There are also a host of “smart” insulin pens which now transmit data to the cloud. The difference between the failed efforts of the past and today is the advancements in data transmission combined with advanced data analytics. The next step making these systems a reality will be outcomes based reimbursement, when outcomes really matter diabetes systems will become commercially viable.
This is the future seen by Google, Apple and Samsung who see the diabetes market continuing to grow at epidemic rates. This is why they are partnering with device makers. The current market dynamics may not be great but unlike traditional device companies these high tech companies aren’t concerned with where the market is today rather where it’s going. Since their diabetes initiatives are not yet key to revenue growth combined with their huge cash reserves they can take their time. They can develop their systems while the market transitions to outcomes based reimbursement.
The way Diabetic Investor sees it just as companies like Google and Apple have changed the way we live our lives they will also change the future of diabetes management. Thankfully the diabetes space will no longer be the domain of just drug and device companies. The better ones will learn to work with these high tech newcomers, to enhance and not fight what they are doing. They will see the light and not stare into the darkness.
