Sprint isn’t the only company banking on the iPhone
Late last week the executives of Sprint Nextel held an investor day where they had hoped to create some enthusiasm for the company now that they had the iPhone. A plan which backfired as shares in the company plummeted 20% when investors learned the company would have to come back to the capital markets for more funds. It also didn’t please investors that Sprint has basically bet their entire future on the iPhone. According to several reports in order to secure the iPhone the company committed to buying $20 BILLION worth of iPhones, and yes that Billion with a B. According to an article that appeared in the Wall Street Journal the company would basically have to convert every customer they have to an iPhone and even then they would have iPhones leftover.
But Sprint isn’t the only company who has hooked their wagon to the iPhone. Given the enormous popularity of the iPhone and the trend towards interconnected diabetes management systems several diabetes device companies are also betting their futures on the iPhone. The most notable of these effort comes from the folks at Sanofi-Aventis (NYSE:SNY) and their iBGStar glucose monitor which attaches to the iPhone. Another device which also connects to the iPhone is the GlucoDock® from Medisana®. There are also companies who are developing hardware which allow conventional monitors to connect to an iPhone. The one common theme whether the device attaches directly to the iPhone or uses some sort of cable to attach to the iPhone is the data from the monitor goes into an app which in turn helps the patient better manage their diabetes.
Given the growing popularity of the iPhone and the growing population of patients with diabetes, this marriage of the iPhone with a glucose monitor makes perfect sense. It also makes perfect sense that a host of companies would all of sudden emerge claiming they have built a better mouse trap. The IBGStar and GlucoDock aren’t even available in the US yet and are just barely out in the market in Europe but already Diabetic Investor is seeing companies who claim they have something better.
A perfect example of this is a company called LabStyle Innovations who has a device called the GlucoWay. Like the IBGStar and GlucoDock, the GlucoWay attaches to the iPhone. Like the iBGStar and GlucoDock, the data from the GlucoWay device works with an app. Unlike the IBGStar and GlucoDock, which are real products from real companies, the GlucoWay device is nothing more than an idea, an idea which the company hopes will make them rich.
While this company has absolutely no track record, no experience in blood glucose monitoring and that not one member of their management team has ever worked at a diabetes device company, the company is out raising money; imagine that. With the help of Spencer Trask Ventures, Inc. the company, through a private placement offering, is attempting to raise $3 million. Talk about chutzpa. (For those readers unfamiliar with Yiddish chutzpa is defined as shameless, audacity and impudence.)
When the folks at Spencer Trask reached out to Diabetic Investor requesting a meeting, we decided to give them a chance to state their case as to why investors should pony up $3 million bucks in this unproven company. To get a grasp of how this meeting went think of how Texas Governor Rick Perry has performed in the Republican Presidential debates; not good.
Here are just a few gems that came out of the meeting; the folks at Spencer Trask actually believe that the GlucoWay is so cool that it will actually expand the market for glucose monitoring and actually stated that non-insulin patients would test more frequently with the GlucoWay. They also believe that although they have no formulary coverage, no marketing department or any relationships with distributors that they will be capture a “significant” portion of the US market. If that wasn’t enough they went onto to state they will also capture a significant portion of the Chinese market.
When Diabetic Investor inquired about mundane items like management experience, regulatory approval timelines, manufacturing capabilities, etc. the company basically stated all of this items would be out-sourced. The real key, surprise, surprise – is that not only is the GlucoWay really cool it’s also really cheap.
We could go on here but think we’ve made our point. However, don’t be surprised if the company is actually able to dupe investors into ponying up $3 million of their hard earned money. But that’s just the start; the folks at Spencer Trask noted that once they raise this initial round of capital, there are already plans in place to take the company public. So not only do they plan on finding investors dumb enough to invest in the private placement, they will then take this dog to the public and attempt to find more suckers.
Anyone who doubts this should take a look at all the millions raised in the false hope of finding the Holy Grail of glucose monitoring; a non-invasive glucose monitoring. History is full of examples of investors buying into the hype without performing even the slightest amount of due diligence. When it comes to the diabetes device world the greater fool theory is alive and very well. Or as friend of Diabetic Investor likes to state; “You can steal more money with a good PowerPoint presentation than you can with a gun.”
The reality is the folks at Spencer Trask really won’t have much trouble raising the money. The GlucoWay has all elements that attract uniformed investors – diabetes is growing at epidemic rates around the world, the glucose monitoring market is huge and growing, it works with the coolest and most popular device on the planet, it’s really cheap and more than likely one of the big boys will come along and buy the company.
Unfortunately Diabetic Investor has seen this before and equally unfortunate we will see it again. One just might think that investors would learn from past mistakes; that they would actually do more than just believe the horse manure being spread by the companies who promote these scams. Sadly this is not the case as there is one thing these companies can count on; just as there is a growing population of people with diabetes, there appears to be a never ending supply of people stupid enough to invest in scams related to diabetes.
When will these people learn?