Some Random Thoughts on a Monday

Some Random Thoughts on a Monday

First let’s congratulate the folks at Insulet (NASDAQ: PODD) as this morning the FDA approved the DASH. Per a company issued press release;

“Insulet Corporation (NASDAQ: PODD) (Insulet or the Company), the leader in tubeless insulin pump technology with its Omnipod® Insulin Management System (Omnipod System), today announced FDA 510(k) clearance of the Omnipod DASHTM Insulin Management System (Omnipod DASH). This clearance lays the foundation for a steady cadence of innovation that furthers Insulet’s mission to empower users to enjoy simplicity, freedom, and healthier lives with their differentiated technology.”

While this is good news for Insulet let’s be honest here it won’t change things all that much. What Insulet needs more than anything is to get their version of a closed loop system to the FDA as quickly as possible. With Tandem (NASDAQ: TNDM) about to get FDA approval for their low glucose suspend system which will then be followed the submission of a full blown closed loop system, Insulet cannot afford to fall further behind.

We would also suggest that everyone start looking at the insulin pump market from a different perspective. Rather than view this as a battle of who is best situated to dethrone market leader Medtronic (NYSE: MDT), it’s better to ask which of Medtronic’s competitors can achieve sustainable success. The fact is Medtronic has a monopoly when it comes to the insulin pump market and baring a huge misstep that won’t change.

This does not mean however that Tandem and Insulet cannot be successful. The key for both Tandem and Insulet is to expand their installed user bases while driving efficiencies wherever they can find them.

Next on our list are the poor folk at MannKind (NASDAQ: MNKD) as based on how shares have performed this year they can’t catch a break. Going into this week’s trading on a year to date basis shares are down over 25%. Listen the fact that this company is still alive and kicking is nothing short of miraculous. Yet try as they might Afrezza scripts just aren’t accelerating fast enough and we suspect the company will once again hit the capital markets in the near future.

Speaking of insulin companies, it’s also been a tough year for Lilly (NYSE: LLY), Sanofi (NYSE: SNY) and Novo Nordisk (NYSE: NVO). Before trading began today shares on a year to date basis Lilly was basically flat, Sanofi down over 10% and Novo down almost 13%. Of the three we see Novo being the best buy as their oral version of semaglutide has blockbuster potential assuming of course Novo can get the damn thing to market on time. The fact is physicians have embraced GLP-1 therapy and an oral version of a GLP-1 could send shockwaves throughout the entire diabetes drug sector.

Herein lies the rub as all three insulin companies who also have their respective injectable GLP-1’s are caught between a rock and hard place. Do they sacrifice insulin sales and aggressively promote their GLP-1’s or do they attempt to find that delicate balance between promoting insulin, a commodity, or GLP-1’s which are becoming a commodity? From all outward appearances Novo has made their choice favoring GLP-1’s over insulin. Lilly has done very well with Trulicity but has nothing to compete with the oral version of semaglutide and now faces competition from the injectable version. Sanofi not surprisingly is well behind in the GLP-1 category and seems unlikely to compete in the future.

Turning our attention to the CGM world just for moment, shares of Medtronic and Abbott (NYSE: ABT) are up about the same for the year, with Dexcom (NASDAQ: DXCM) powering ahead up over 57%. The real pressure isn’t on Medtronic nor Dexcom but Abbott. Medtronic being the last to enter the stand-alone segment has the luxury of no expectations. Dexcom has proven the naysayers wrong and solidified its place as the system to beat. Abbott however has a choice to make. Yes, the Libre has done very well from a patient acquisition standpoint but at what cost?

Does the company add alarms and alerts and go head to head with Dexcom or do they remain committed to a price war? Should they be looking over their shoulder and be worried that while Medtronic may not have the best system they will improve what they have and have the money to fight a price war. Do they attempt to strengthen their relationships with the insulin companies who are all developing a Tyler, a difficult move given that Dexcom has pretty much locked up all the players already or do they wait until the Bigfoot system becomes available?

The more we look at the CGM market the more we see it evolving. The good news for all the players is that CGM is becoming the standard for glucose measurement. The bad news is the market will commoditize just as the BGM market did. The good news is all three can win. The bad news is the coming price war will help no one but the payors.

The good news for Dexcom anyway is they are locking up all the right partners while strengthening their relationships with payors. They know a price war is coming and they are preparing to fight. The good news for Medtronic, and who would have thought we would write good news, Medtronic and CGM in the same sentence, is they have nowhere to go but up and frankly have nothing to lose. The good news for Abbott is they have built a nice installed user base however this success could prove to be fleeting. We’re going to be listening very closely to future Abbott earnings calls as we suspect Libre growth will be slowing.

Just in case people have noticed yet an interdependence is developing between the insulin companies, insulin delivery companies, CGM companies and insulin dosing algorithm companies. With GLP-1’s becoming more popular and insulin becoming a commodity, making any serious money in the insulin market will require these companies work together. Whether the insulin is delivered via a Tyler, syringe or pump, the two most critical components are a CGM and algorithm.

The companies most at risk here are all the way cool whiz bang apps which are supposed to help insulin patients more effectively dose their insulin. Apps that quite frankly will be easily replaced by an algorithm. Apps that so far are dependent on an outdated technology to gather the most crucial piece of information, glucose readings. As we have noted the algorithms will soon become so sophisticated the only information needed to properly dose insulin will be glucose values and insulin information. Carb counting will become a thing of the past.

The day is coming when an insulin using patient won’t have to do much. They will not have to count carbs, or understand concepts such as insulin on board, time to action or duration on action. Nor will they need an app to do anything more than interpret data provided by the CGM and “smart” pen. The algorithm will perform all the heavy lifting. All the app has to do is communicate to the patient what dose to take. Pump patients will have it even easier as all they need to do is make sure the pump is filled with insulin and properly attached to their body. The system will do the rest.

For the moment the patients left out in the cold will be the millions not using insulin or a GLP-1. Crazy it sounds patients who use oral therapies alone will have the most work to do if they seek better outcomes. Sure, it seems as if they have the shortest distance between two points as all they really need to do is take their pills as prescribed but research has shown these patients aren’t doing this. The real key for better outcomes in this group is what it always has been, getting them adherent.

While technology is eliminating steps that an insulin using patients must perform, it hasn’t solved the most difficult issue in diabetes. Getting non-insulin using patients to take their meds. Technology has the potential to do this but so far that’s all we’ve seen is potential. Wacky as it sounds the needs of the largest patient segment, the biggest potential market, aren’t being addressed.

To us anyway this makes sense as no way cool whiz bang app, no way cool whiz bang device or toy, can force a non-insulin, perhaps we should rephrase this to non-injectable patient to take their meds as prescribed. Something that hasn’t changed since we began writing over 20 years ago and something we suspect won’t change unless there is a major shift in thinking. Perhaps one day but that day is not today.