Patch it up

Patch it up

It’s said that insanity is performing the same behavior over and over yet expecting a different outcome. We felt this way last night while watching the new quarterback for our beloved Chicago Bears throw a pick six during his first series. This feeling reoccurred this morning when we read the earnings report for Valeritas (NASDAQ: VLRX).

Now just as a refresher Valeritas makes the V-Go patch pump, one of the many “dumb” patch pumps that is supposed to help patients take their insulin. The theory behind these “dumb” patch pumps is that patients don’t need a real insulin pump but they don’t like injecting themselves multiple times per day. Bottom line they will be more compliant with their therapy using this device.

Frankly we have never understood why any patient would use these devices. Thanks to advanced needle technology and the newer insulin pens injections are no longer that painful. While we would never state that injecting multiple times per day is an enjoyable experience the reality is it is more painful to perform a conventional glucose test than it is to inject insulin.

Yet this is the wacky world of diabetes and engineers just love to come up with devices that are designed to solve a problem that really doesn’t exist. Even wackier is that these companies are funded when the product they have does not have a place in the marketplace. No to investors it really does not matter that payers prefer cheaper syringes or insulin pens. Nor do they seem to care that success in the patch pump arena has been nonexistent.

Now at this point many are saying “Hey what about Insulet (NASDAQ: PODD) and the OmniPod that’s been a success.” Well yes and no. As we noted just yesterday it took Insulet some 11 years to reach the 100,000-patient threshold and the company still isn’t making money. Yes, they are the best of the patch pump companies but that isn’t saying all that much as they are the only company that has one. Roche supposedly wants to finally launch the Solo they acquired from Medingo, but this is the same company that has pulled out of the US insulin pump market. Medtronic (NYSE: MDT) at one time was developing their own patch pump which thankfully was killed as the damn thing just didn’t work.

But as we noted yesterday these failures haven’t stopped companies from trying and investors from investing. Yes, our friends in France, CellNovo are the latest entrants in the if we build they will fund it and we’ll get bought arena. We should note that Insulet was built on this same premise and last, we looked they are still an independent company. True Roche did buy Medingo but seriously how many companies are willing to blow a billion bucks on one insulin pump acquisition then double down and blow more money on another.

Yet this insanity does not stop with “real” insulin pumps as Johnson and Johnson (NYSE: JNJ) a company that couldn’t make any money with Animas, went out and bought Calibra a company with a “dumb” patch pump. A system they haven’t launched and are now trying to sell yet can’t seem to get rid of.

Given this history we are not surprised that Valeritas figured they too could bilk investors out of millions and then get rich when a greater fool came along and bought them. And given how they are doing they just might be right. Here is what the company put in today’s press release;

“We believe our capital efficient high-touch, higher-service sales and marketing strategy was further validated in the second quarter of 2017 as our non-disrupted sales territories targeted accounts experienced 18% new prescription growth compared to the prior year,” said John Timberlake, President and Chief Executive Officer of Valeritas. “Given this success, we increased the number of active sales territories from 30 to 48 in the quarter and launched our new marketing direct to patient activation programs to excellent initial feedback. While these achievements continue to be masked by declining revenue in accounts that we no longer actively service with our sales force, our confidence in our more focused sales and service strategy has grown and we expect continued sequential quarterly growth in the second half of 2017.”

To put this statement in terms everyone can understand this would be like John Fox the Bears head coach saying “Listen we know that Mike Glennon our starting QB looked terrible and that our first-round draft pick Mitch Trubisky looked great but keep in mind that Mike played against first stringers and Mitch against second and third stringers. We are obviously disappointed that Mike looked clueless and had no idea what he was doing but don’t worry he’ll get better. Keep in mind that Mitch is waiting in the wings and although our team is going to suck big time this year the plan is to stick with Mike. But hey the future sure looks good.”

Frankly we have never understood why investors in companies like Valeritas or fans of the Bears fall for such bullshit. Is it because of the deals we mentioned or in the Bears case the fact we won a Superbowl 31 years ago. Seriously shares of Valeritas have fallen over 85% this year so it makes perfect sense they deserve the benefit of the doubt, that this new strategy will work and by the grace of God someone will come along and buy the company. Yes, and the Bears will be playing in the Superbowl this year.