Stranger things have happened

Stranger things have happened

As Diabetic Investor has been saying the wacky world of diabetes is changing rapidly. A transformation is taking place as the old guard exits a whole new set of companies are positioning themselves to become the leaders of diabetes management in the future. Among this group is Google who held their developers conference this week. Google made a splash in the diabetes device world when they announced they were developing contact lenses which measure glucose levels. It’s also know that Google along with a host of high tech companies are making a major push into wearable technologies. Technologies which will fit perfectly into the new world of interconnected diabetes management (IDM).

One of the biggest issues with these new technologies is not whether they can improve diabetes management, they have that potential. However as valuable as these technologies may be no one is quite sure if a company like Google will be able to make any money selling these devices. In many respects the timing here couldn’t be much worse. The diabetes device world has almost fully transformed itself from a medical device market into a commodity style market. Glucose monitoring has already made this transformation, the insulin pump market is headed in that direction and with the many companies seeking to enter the continuous monitoring market the possibility exists that CGM will also move in that direction.

What newcomers like Google are banking on is that reimbursement for diabetes management will move from a fee for service model to an outcomes based model. While most everyone in diabetes agrees this change will take place no one is quite sure when it will take place or what it will look like when it gets here. At the moment there are host of outcomes based reimbursement models are being tested.

The real question then becomes what a company like Google does while this transition is taking place. Do they simply continue to develop their systems believing that by the time they are fully developed outcomes based reimbursement will be in place? Or do they become more proactive perhaps partnering with existing device and drug companies now? Diabetic Investor believes it will be a combination. The fact is companies like Google might be very good at developing way cool devices but they have no clue when it comes to the wacky world of diabetes.

As we have noted on numerous occasions developing a way cool device is one thing; it’s quite another to successfully commercialize this device. Just take a look at the now dead but way cool iBGStar from Sanofi (NYSE:SNY), a company very familiar with the wacky world of diabetes. Even with their vast experience in diabetes Sanofi just couldn’t come to grips with the fact that devices no matter how cool they may be just don’t sell themselves.  This especially true in the glucose monitoring market where formulary placement can make or break the success of a device. A device may be way cool but if payors don’t provide preferred formulary status it really doesn’t matter how cool it is.

Now it’s no secret that high tech companies like Google have a tons of money and it’s also no secret that they don’t have any problems spending it. Therefore it wouldn’t surprise Diabetic Investor if Google wasn’t already sniffing around the diabetes space looking for acquisitions. And considering the desperate nature of the companies already in the market this interest couldn’t have come at a better time. As we have noted previously there isn’t a BGM company around who wouldn’t like to sell. The same can be said for insulin pump and CGM companies.

Take a look at Johnson and Johnson (NYSE:JNJ) currently the market leader in BGM and number two in insulin pumps. The company has completely restructured their diabetes units favoring drugs over devices. Although the company has publicly stated they aren’t exiting the device side this could change in a heartbeat if the right offer came along. The same could be said of Medtronic (NYSE:MDT) the leader in the insulin pump market.

Quite frankly Diabetic Investor is hard pressed, given the dynamics of the market, to believe that any company in the market wouldn’t entertain an offer. Insulet (NASDAQ:PODD), Tandem (NASDAQ:TNDM) and Dexcom (NASDAQ:DXCM) among them. Not to mention Abbott (NYSE:ABT), Roche and Bayer would be delighted to unload their diabetes units.

Yet Diabetic Investor believes that high tech companies like Google could also pursue companies that are not directly related to diabetes. Yes acquiring an existing diabetes company is a good start but it’s just that a good start. The strong possibility exists that Google could acquire a payor, yes that’s right a payor. Think of it this way what better way to control the process from beginning to end. Now we don’t see this happening in the near future but it would not surprise us to see this happen. Let’s face facts who better than companies like Google to understand the new way healthcare is not just delivered but paid for.

No matter what happens with Obamacare one thing is certain when it comes to the future of healthcare technology will play a larger and larger role. Whether its electronic health records or remote patient monitoring technology and healthcare are melding together. This is one reason the existing players in diabetes are having such a hard time, as they might know diabetes they are clueless as to how to adapt to this new world.

Change is definitely in the air and will come quicker than many believe. The harsh reality as we have noted before is that a changing of the guard is taking place in the wacky world of diabetes. A change that will happen first in the device arena and then move to the drug side. The question isn’t if this will happen but when it will happen and which of the old guard will be first to sell out.