The aftermath

The aftermath

As we begin another week some signs are emerging as to what life will look like after this crisis is over. Just this morning J Crew became the first retail causality of the pandemic unfortunately this is first of what we suspect will be many. Last week the unemployment numbers continued to rise another trend we don’t see abating anytime soon. The fact is no one really knows what life will be like when this pandemic is over.

Making matters worse is the fact that even when this current crisis is over COVID will never leave. Just as life went back to normal after 9/11 it was a new normal that included several changes which we now take for granted. The tighter security measures first implemented after 9/11 are now commonplace. The same will happen after this crisis the difference being the tighter security measures implemented after 9/11 were mostly felt when we traveled, the changes that will be instituted after COVID will hit us every day.

Employers will now face the decision of which of their employees can work remotely and which need to be physically present. Office spaces will likely be redesigned to accommodate social distancing between employees. The same will happen with the restaurants we eat at, the bars we drink at and the stores we shop at. It’s difficult to imagine attending a live sporting event in a packed venue with fans high fiving each other.

By extension how we utilize medical and health services will forever change. Thanks to COVID people are becoming comfortable with virtual doctor visits and remote monitoring. Patients by default are discovering that they no longer must physically visit their physician or head to their local pharmacy to pick up their meds. These same patients are also discovering the many apps and/or web sites that can help them more effectively manage their diabetes. What was once the domain of the most engaged patients is now trickling down to the broader patient population.

While this has the potential to be a very good thing, we remain skeptical that the results will be any different, that we will actually see a noticeable improvement in patient outcomes. As we have noted previously just because a patient is remotely monitored and can consult with their doctor virtually does not mean they will follow the recommendations made. Technology may be changing but human nature isn’t.

In the near term which we shall define for the moment as the remainder of 2020 we see COVID as a net negative for the diabetes industry for the following reasons;

1. Worried about money patients will be reluctant to add new devices/drugs. While we applaud many of the patient assistance programs announced by drug and device companies these programs will not last forever and they will crimp margins.

2. Employers will likely shift spending away from diabetes programs and concentrate more on social distancing items.

3. We further anticipate employers will also be more conservative in their overall spending. This cannot help companies like Livongo who are dependent on adding new employers.

4. Dexcom and Abbott will likely benefit from the crisis, but we don’t see this benefit kicking in until 2021.

5. The same can be said for Tandem who as we noted now has the coolest toy in the toy chest. Insulin pumps even when covered by insurance still require a hefty outlay by patients and with money a big concern patients will likely hold off on any major expenses.

6. Insulet could be the most immune given their pay as you go model, and this could buy them time to get the Horizon on track.

7. Medtronic also benefits as this reluctance to spend will likely slow the exodus of patients switching from the 670G to the Control IQ. The exodus will continue juts not at the rapid rate had the crisis not happened.

8. Lilly and Novo Nordisk should remain relatively unscathed although Novo could be adversely impacted with a slower uptake of Rybelsus. Yet with sales of Trulicity and Ozempic powering ahead and the GLP-1 market continuing to grow we don’t see either suffering much.

Now in May 2020 could well go down as the year that wasn’t. Even as parts of the country begin to reopen it will not be full steam ahead for some time. Worse should this reopening backfire and states which are now reopening close again or go back to stricter rules the markets could be sent into a tailspin.

Not throw gasoline on a fire but we shudder to think of what would happen should this virus stick around longer than 2020 and become another crisis in 2021. Yes it appears we are bending the curve now, but as social distancing eases and people get out and about again this is a concern.

The biggest difference we see between the aftermath of 9/11 and the aftermath of COVID is that COVID will never really leave. We are all hopeful that a vaccine will be developed but that’s still a year away and what happens if COVID mutates into a form that is immune from the vaccines currently under development. Something no one even wants to think about as the prospect of such a situation is devastating.

This week will finish off most of the first quarter earnings reports with Novo, Livongo and Insulet all reporting this week. They will likely follow the pattern set by those who have already reported and reinforce our view that second and third quarter results will paint a much better picture of the impact COVID is having.

The fact is everyone is getting impatient with social distancing, people want to go back to work and want life to go back to normal. Yet it’s equally true that life will never go back to the way it was before COVID and right now there are just too many unknowns. Hold on tight everyone it’s going to be a very rocky ride for the remainder of 2020 and perhaps beyond.