Shortest Path

Shortest Path

Now that the second quarter has ended and we move into the dog days of summer it’s time again for another round of earnings calls. Perhaps the most anticipated will come on the 26th when Lilly (NYSE: LLY) reports and we will learn whether the EMPA-REG results are helping Jardiance. We just might get a glimpse of this on the 19th when Johnson and Johnson (NYSE: JNJ) reports for if Jardiance is taking share it will likely come at the expense of JNJ’s Invokana. Bringing up the rear, appropriately we might add, on the 28th is AstraZeneca (NYSE: AZN) a company that just can’t get out of its own way.

Frankly Diabetic Investor isn’t all that interested in what the device companies, glucose monitoring in particular, have to say as there are only so many ways a company can say that business stinks, pricing sucks and growth is nearly nonexistent. The lone exception here will likely be Dexcom (NASDAQ: DXCM) as CGM is about the only diabetes category that’s actually growing. Tandem (NASDAQ: TNDM) by all accounts continues to bleed cash while Insulet (NASDAQ: PODD) continues to transition from a diabetes device company to a drug delivery company.

We’re actually thankful that many of the way cool whiz bang device companies aren’t yet publicly traded. With each passing day we are beginning to wonder what their exit strategy is or put more bluntly how do they get out of this mess. The reality is none of these companies are really that unique as this area has commoditized quickly. The problem isn’t that their way cool whiz bang cloud enabled devices don’t work, the problem is each of them can easily be replaced.

The stark reality for every company in this wacky world and it doesn’t matter if they are a drug or device company is they have long ignored the shortest distance between two points is a straight line. Back in the day as this market was in the early stages of commodization we noted that in order to achieve sustained growth these companies would have to change how they did business. That growth would not be driven by the introduction of new drugs and devices rather by getting patients to be compliant with their therapy regimen.

This is even more true today as we transition from fee for service reimbursement to outcomes based reimbursement. As we have stated numerous times the biggest obstacle to better outcomes is not new drugs or devices but getting patients to be compliant with their therapy regimen. A fact which was reinforced today by a new report released by the IMS Institute for Healthcare Informatics.  According to this report –

“On average, less than 40 percent of individuals with Type 2 Diabetes globally are achieving optimal levels of adherence (the extent to which a patient follows the prescribed interval and dose of a medicine regimen) and persistence (the time from initiation to discontinuation of a therapy).”

The report goes onto to state;

“The path to optimal adherence and persistence involves policymakers, payers, healthcare providers, the private sector, caregivers, families and patients themselves. Policymakers can play a vital role in addressing barriers in the integration and provision of care by improving access, health literacy, health beliefs and attitudes. Multi-stakeholder involvement ultimately enables healthcare providers to address an individual’s specific support and information needs through a customized, patient-centric approach.”

Or put more simply when it comes to optimal diabetes management this is a story about systems not the individual pieces of the system. That this system will only work when all the various players acknowledge they must work together rather than compete against each other. That in the end everyone will win. Drug and device companies will see increased sales, payers will experience lower costs and most importantly patients will see better outcomes.

The good news here is that finally at long last companies are slowly waking up to this fact. The bad news is they continue to struggle to break from the past. To some extent this is understandable as outcomes based reimbursement is still developing. This is why we so firmly believe that the companies that will lead the way in the future will come from outside the industry. That they will not be encumbered by being tied to the past.

As we much as we may criticize what we like to call the old guard we do understand the predicament they face. For years they have been operating under one set of rules, have built large infrastructures to operate successfully within these rules and now the rules are changing. Making life even more difficult is the speed at which change is occurring. Unlike our friends on the west coast these companies did not grow up in a world of constant change. Change was more gradual.

The fact that the old guard far too often moves at glacial speed is a direct result of the world they grew up in. Back in the day there was not the sense of urgency as there is today. Or put even more simply the old guard was not built for the world we live in today and it’s not so easy to turn a battleship on a dime.

As Momma Kliff was fond of saying; “Change is never easy, even when it’s obvious and necessary. But if we are to survive and prosper in the future change we must.”