The End is Near

With the approval of the Control IQ the last thing Sean Salmon the new guy running Medtronic diabetes needs is more bad news. But as Momma Kliff used to say this is why you earn the big bucks so put on your big boy pants and deal with it. Today Lilly and Dexcom reached a non-exclusive agreement to integrate Dexcom’s sensor into Lilly’s insulin delivery systems which include connected insulin pens and yes, an insulin pump.

Now we have never understood why Lilly wants to be in the insulin pump business but what the heck there are lots of things we don’t understand like why the Bears cannot beat the Packers, but let’s not digress. We do understand the entry into the connected pen arena as Lilly like everyone else wants a Tyler as they like Novo Nordisk see Tyler as tool to sell insulin. Sanofi which for the moment is still in diabetes also just did a deal for their version of Tyler.

Lilly also is the only company that has developed a disposable Tyler. Although we have yet to see this way cool whiz bang device, we’re told Lilly has a disposable insulin pen that communicates with a smartphone. This is in sharp contrast to the traditional Tyler which is either a durable connected pen something that Companion, and Novo have. Or a connected cap cover which is used in conjunction with a disposable pen which is where Sanofi and many others are headed.

We like Lilly’s approach, assuming of course it ever gets here, for the simple reason it fits within the patients existing paradigm. Patients are already using disposable insulin pens by the boatload and the Lilly approach does not ask them to do anything different then they are doing today. While it may not be a Herculean task to place a cap cover over a disposable pen the cap cover does have to be charged and while these extra steps aren’t onerous, they are extra steps. As much as we like the Companion approach the cost of durable pens make this approach difficult. Even with their massive scale Novo will run into the same problem.

This is another reason we like Lilly’s approach as it’s also very cheap to make and Lilly knows that payors will NOT pay a premium for a Tyler. Lilly understand that they will have to GIVE AWAY the connected disposable pen, unlike everyone else who will either seek reimbursement for their system or eat the cost which will be substantially higher than Lilly’s. Keep in mind Lilly is already making millions of disposable pens. All they are really doing is adding a chip to these pens, chips which when bought in massive scale are very cheap.

This is the reason we continue to believe the insulin companies will own the Tyler market, that is assuming they get moving before someone else beats them to it. Yes Tyler will make insulin therapy easier for the patient but that’s not why the insulin companies need him. They need Tyler to protect their insulin franchises since insulin is now a commodity. They see Tyler as protecting these franchises as they know it won’t be long now before we have a biosimilar short-acting insulin. Well Sanofi already has one but that doesn’t count as well it’s Sanofi.

See when it comes to insulin therapy it really doesn’t matter which insulin a patient uses. Yes there are some minor, very minor differences between the brands but none so glaring that a patient would notice the difference. Simply put for majority of patient’s insulin long or short acting are interchangeable. The insulin companies know this and know they need to somehow differentiate their brand from the other, Tyler is that differentiating factor. This is why all the insulin companies want to work with Dexcom as they know Dexcom is King of the CGM mountain. Abbott may have more patients worldwide but until they Libre2 gets here, and why it still isn’t here is a mystery, they are not on the same page as Dexcom.

In the future we believe all the connected pens no matter what configuration will talk to both Dexcom and Libre. But as it stands today Dexcom is the most experienced at connectivity and this experience cannot and should not be underestimated. This does not mean Abbott can’t do it rather they have yet to do it and commercialize it. By the way weren’t they supposed to do this with Bigfoot, gee guess that didn’t work out to well. But let’s not digress.

So if you have paying attention recently and we hope you have been real change is coming to the insulin delivery sector. In the very near future it won’t be about which insulin a patient uses rather which insulin delivery system they use. Do they go over the top using the Control IQ, or do they prefer Tyler? Both systems have compelling stories and much different price points which as we all know will impact decisions.

This is why we believe Mr. Hudson should finish what he started and sell Sanofi’s diabetes assets. This is why we believe every insulin pump company should have a Tyler of their own. This is why we believe if they wanted to Dexcom with Companion could beat everyone to the market with a Tyler. This is why we almost feel for Mr. Salmon who continues to swim upstream fighting multiple wars on multiple fronts.

The simple fact is market forces combined with mistakes made by previous management teams will destroy the Empire. As we noted this morning the rebels now own the Death Star and will use it to exact their revenge on the Empire. Next they will face a ground assault from all the various Tyler’s coming to market. Throw in their existing problems unwillingness to change their business model and a good deal of hubris and it all adds up to a slow and steady death march.