Potential or Problems- An ADA Preview

Potential or Problems- An ADA Preview

Late next week the diabetes world will folk to the City with the big shoulders for the annual American Diabetes Association conference. While there is no question that Chicago will be buzzing, the buzz likely won’t be coming from the conference. The real buzz will be happening just a few miles from the conference at the United Center where the Chicago Blackhawks will be taking on the Boston Bruins in the Stanley Cup Finals, a classic match-up of two original six teams.

Looking ahead to the conference the real question is can the industry overcome the many problems it faces and turn sand into gold. As everyone knows while the general economy appears to be recovering the healthcare sector is in the midst of a major transformation.  Drug and devices companies are beginning to feel the impact of ObamaCare and no one seems quite certain what the future will bring.  About the only thing everyone agrees on is that reimbursement for drugs and devices is going down and that companies will have to do more with less.

Hardest hit, so far, has been the device side where competitive bidding is decimating the blood glucose monitoring market.  As Diabetic Investor has been reporting none of the major branded companies appears to be equipped to deal with the impact of competitive bidding and about the only strategy being considered is cutting costs.  As we have noted in the past while we understand the zest for cost cutting companies cannot cut their way to growth. Either the majors realize they must dramatically alter the way they do business or risk being put out of business.  Perhaps this is why Roche, Abbott (NYSE:ABT) and Bayer have all been the subject of rumors that they will soon be exciting the market and are actively shopping their diabetes device units.  The only problem is there are few, if any, willing buyers.

The insulin pump market is a much different story as industry leader Medtronic (NYSE:MDT) is facing a host of issues.  While the company continues to pursue a true closed loop insulin delivery system the competition is kicking their backsides in the field. Insulet (NASDAQ:PODD), Animas, the insulin pump unit of Johnson and Johnson (NYSE:JNJ) and newcomer Tandem Diabetes are not just winning the battle for patients new to pump therapy, they are finally beginning to kill the goose that lays the golden eggs for Medtronic and convert existing Medtronic patients to their systems. While Diabetic Investor didn’t think it was remotely possible the real possibility exists that Medtronic will lose significant share over the next three to five years.

In the drug arena Diabetic Investor is anxious to see what if anything Bristol Myers Squibb (NYSE:BMY) and their partner AstraZeneca (NYSE:AZN) plans to do with Bydureon.  Listening to their earnings calls and watching their investor presentations it’s almost as if Bydureon doesn’t even exist. Perhaps they are waiting to for the latest controversy over GLP-1 usage and pancreatic cancer to pass or perhaps they just aren’t smart enough to realize they have one of the most promising treatments for Type 2 diabetes. Given the two companies zest for acquisitions one has to wonder if they have fallen into a common trap of not knowing what to do with the companies after they have been acquired. Diabetic Investor has seen this time and time again when a company goes out and spends billions to fill a hole in their pipeline or seeks a potential blockbuster drug and then not have a clue what to do after they get what they supposedly wanted in the first place.

Another interesting story will be whether Sanofi (NYSE:SNY), the Lords of Lantus, finally admits their much ballyhooed attempt at becoming all things diabetes has been a colossal failure. Equally intriguing will be to see how Novo Nordisk (NYSE:NVO) tries to put a positive spin on the Tresiba delay. And of course, Diabetic Investor will be most interested to see how Lilly (NYSE:LLY) will explain to investors why their strategy of developing copycat, me-too, late to market drugs will ultimately lead them back to a leadership position in diabetes.

A story that likely won’t get much attention but should are all the smaller drug and device companies who have some truly exciting and innovative products. This is particularly true on the device side where these smaller, lesser known companies actually have offerings that are superior to what’s being offered by the major companies. Yet given the impact of competitive bidding and continued price contraction in the marketplace these innovative products are likely doomed. The simple fact is the major players no longer have the appetite or capital to acquire promising new companies. The reality is market conditions simply don’t support this strategy.  As much as Diabetic Investor would like to see these companies succeed and believes new blood is desperately needed, these companies should realize that things are much different today than they were in the past. The reality is the major players would sell their units in a heartbeat if the right offer came along which should a clear message to these smaller companies who are deluding themselves into believing they will hit the lottery when they are acquired. That ship sailed long ago and isn’t coming back anytime soon.

Still this is the wacky world of diabetes where anything can and usually does happen. And just in case anyone is interested the Hawks will take the Cup in a tough seven game series- GO HAWKS.