That Poor Cat

That Poor Cat

Before we get into our post today we have some good news for our buddy Kim Blickenstaff Tandem’s (NASDAQ: CEO) we’ve decided to give him the day off. As the old McDonalds commercial noted you deserve a break today. So, Kim enjoy the weekend and why not have dinner tonight at Eddie V’s in La Jolla a restaurant which not only has great food but an outstanding view. We know it’s a little pricey and you’re only making a buck this year but heck we think you can afford it. Even better take your Board with you as knowing them they’ll pick up the tab as a gift for the outstanding work you have done.

Now onto to business and while we are dog lovers we are feeling sorry for that dead cat. Yes, you can’t swing that cat without hitting a company doing a deal, deals which really won’t do all that much but make for great press releases. The first comes from our friends at Valeritas who have inked a deal with Glooko. Per the release;

“Valeritas Holdings, Inc. (VLRX), a medical technology company which offers patients with type 2 diabetes V-Go® Wearable Insulin Delivery device, a simple, affordable, all-in-one insulin delivery option that is worn like a patch and can eliminate the need for taking multiple daily shots, announced today it has entered into an agreement with Glooko, a leader in diabetes data management. With this agreement, Valeritas will provide future V-Go SIM (Simple Insulin Management) users with Glooko’s cloud-based mobile and web diabetes data management platform to help track and analyze their diabetes care plan. Users can also share their data with their providers.”

By the way just in case everyone hasn’t gotten the memo, yet you can add the word Wearable to the list of diabetes buzz words. Wearables are all the rage these days and never let it said that any of these companies can’t help themselves but jump on a trend. But we digress.

So Valeritas like everyone else is headed for that crowded cloud looking to help patients better manage their diabetes.

Next comes word from our friends at Livongo who unlike our buddies at OneDrop are not using self-reported data combined with fuzzy. Just as OneDrop has a panache for bullshit, Livongo has a passion for deal making. Fresh off raising a $105 million the company has acquired Retrofit, a Chicago startup that develops programs designed to help people lose weight and prevent disease.

Per a story on the web site;

“For our clients, we’re now addressing the comprehensive health challenges their employees face,” Glen Tullman, Livongo’s founder and CEO, says in the release. “For our members, we now have more services that make it easier to prevent individuals from getting sick and, if they do, working with them to return to health and stay healthy.”

Listen we give Glenn and his team at Livongo credit as if nothing else they have shown they can and will partner with just about anyone when it comes to building their platform. Now if they just get some patients onto this expanding platform that would be really neat.

See this is what everyone seems to forget if any of these businesses are to be successful they need patients, they need scale. And it’s becoming increasingly difficult to capture scale. Listen we have no idea yet what the folks at Platinum are going to do with the LifeScan franchise they just acquired from Johnson and Johnson (NYSE: JNJ). A transaction which by the way they leverage to the hilt which is something easy to do when the business is throwing off tons of free cash. Hey, these guys aren’t idiots. But again, we digress.

What this acquisition does is give Platinum immediate and huge scale as LifeScan has nearly 25 million patients. And folks when it comes to diabetes the most important asset is patients and Platinum now has a ton of them. We’ve said it before and we’ll say it again this isn’t about way cool whiz bang this is about capturing patients the company that has the most wins.

Ok we thought we were going to give Kim a break but sorry we can’t. As this is the exact problem facing Tandem. How do they achieve the scale they need without bankrupting the company? The only way they can do this is to do something that has NEVER been done before; take substantial share away from the insulin pump market leader Medtronic (NYSE: MDT). Animas which JNJ decided to close is just the latest example of a company that has tried to do this and failed.

What everyone seems to ignore is that every insulin pump company not named Medtronic runs into the exact same problem. Basically, they get to a certain size and then wham they hit the wall. Either one of two things happen. In the case of Deltec and their Cozmo Medtronic used their extensive IP portfolio to put them out of business. In the case of Animas, Tandem and Insulet (NASDAQ: PODD) Medtronic swings their other very heavy bat and locks up formulary position.

Roche another ex-insulin pump company demonstrated real talent when they acquired what was then the number two player in pumps Disetronic for a cool billion bucks only to do what Roche does best when they ran the company into the ground. The fact is back then everyone considered the Disetronic pump to be technologically superior to the MiniMed pump. Which points to another problem facing Tandem as it demonstrates that better technology doesn’t always win.

Listen we know that most people in this business like to over complicate simple things like making a peanut butter and jelly sandwich but when it comes to diabetes devices scale is everything. And yes, it is that simple. Scale drives manufacturing efficiencies and allows SG&A costs to spread over a wider patient base. The reality is Medtronic’s huge installed user base is akin to the 100 million Amazon Prime members. It’s the gift that keeps on giving providing an enormous amount of free cash flow.

We’d go as far and state that Medtronic really isn’t in the insulin pump business they are in the insulin pump supply business. This is the goose that lays all those golden eggs generating billions in high margin sales. Sure, they make money on sales of hardware but the real money the profits come from the continual sale of pump supplies. This gives Medtronic a huge advantage over every rival they face. It allows the company to sign exclusive deals as they know whatever price concessions they give to gain exclusivity will be offset from the continual sale of pump supplies.

Medtronic may be looked upon as the evil empire but they ain’t a stupid empire.

Nevertheless, all these hook-ups and deals from the lesser players will continue as if nothing else it creates the appearance that something real is going on when truth be told there is no there there. As Momma Kliff used to say; “Sometimes its better to look like your doing something than to actually do anything.”

Have a great weekend everyone.