Too little too late

Too little too late

Years ago when the conventional glucose monitoring market was thriving Diabetic Investor warned that as good as things seemed at the time danger was just around the corner. The problem as we saw it back then was there were too many me-too copycat products. That each so-called innovation introduced back in the day was quickly copied. We warned that if these companies did not start differentiating their products this thriving market would transform into a commodity market where price became more important then performance. Needless to say this is exactly what happened.

Today this once thriving market has fully transformed itself into a commodity market where price and scale are the only things that matter. A market which was once growing at double digit rates is now barely growing at all. As we predicted back in the day innovations such as alternate site testing and faster test results were nice but would nothing to increase average testing frequency.  The fact was these innovations failed to address the fundamental reason why the majority failed to monitor their glucose levels on a regular basis. We argued that the one only way to increase average testing frequency was to transform this data into patient relevant, patient actionable information.

We further argued that companies in the BGM space should develop systems based on the how a patient was managing their diabetes. That insulin using patients had different needs than those not using insulin. While insulin patients used this information so they could properly dose their insulin, non-insulin patients did not. For these patients we reasoned it would be more effective not to provide a meaningless number rather tell them what zone they were in. To make this information easier to understand why not color code each test result, yellow for caution, green for good and red for bad.

This is why we chuckled a little when we saw LifeScan’s newest meter the OneTouch Verio Flex™ which uses …wait for it … ColorSure™ technology. According to the OneTouch website;

“Our simple Color Range Indicator instantly tells you whether your blood glucose readings are low, in range or high, so you can get on with life.”

Now we don’t want to make fun of our good friends at Johnson and Johnson (NYSE: JNJ) as the Flex has several excellent and … wait for it … useful features besides ColorSure. The only problem is as good as we believe this meter to be it’s too little too late and will do nothing to change the dynamics of the BGM market. As David Mendosa notes when he reviewed the Flex;

“And it’s a good thing for us that most health plans provide the test strips that the Verio Flex uses at the lowest co-pay and that Medicare always covers them. Otherwise, these Verio test strips are expensive. A box of 100 OneTouch Verio test strips without insurance sells for $159.99.”

Yet LifeScan isn’t the only company inflicted with the late to the party virus, yes our friends at Insulet (NASDAQ: PODD) who will report earnings after the market closes today announced they have found a partner for their artificial pancreas project. According to a company issued press release;

“Insulet Corporation (NASDAQ: PODD), the leader in tubeless insulin pump technology with its OmniPod® Insulin Management System (OmniPod System), today announced a license agreement and partnership with Mode AGC (Automated Glucose Control LLC), to develop and incorporate the advanced artificial pancreas algorithm created by renowned researchers Francis Doyle PhD, Eyal Dassau PhD, and Howard Zisser MD. This alliance marks a significant step forward in Insulet’s mission to improve the quality of life for individuals with insulin-dependent diabetes. Insulet’s artificial pancreas system will use the innovative and differentiated OmniPod platform, the latest DexCom Continuous Glucose Monitoring (CGM) technology and the algorithm licensed from Mode AGC.”

As we noted yesterday after Tandem (NASDAQ: TNDM) reported their results when it comes to insulin pumping sensor augmented systems are the place to be. And when it comes to sensor augmented systems there is no better sensor than the Dexcom (NASDAQ: DXCM) sensor. As we have noted on several occasions while there are some minor differences between insulin pumps all these systems do basically the same thing the same way. That if insulin pump companies did not find a way to truly differentiate their systems they would suffer the same fate as BGM companies and see the insulin pump transform into a commodity market.

Tandem’s attempt at this is their user-interface, for Insulet it’s the fact that the OmniPod is wireless. Yet even with these factors neither Tandem nor Insulet has been able to make money, nor has either solved the most complex puzzle of all – how to convert patients using a Medtronic (NYSE: MDT) to their system.

We hate to be redundant but with three insulin pump companies now using a Dexcom sensor the sensor augmented space is now in danger of becoming … wait for it .. a commodity. That while most agree that the Dexcom sensor is superior to the Medtronic sensor this does not change the fact that Medtronic has a huge installed user base which gives them a major competitive advantage.

One note here the real winner in sensor augmented systems is clearly Dexcom. The reason, even when an existing Medtronic patient does not upgrade to their sensor augmented system many chose to use the Dexcom CGM and create their own sensor augmented system. Basically these patients value the accuracy and reliability of the Dexcom sensor and even though this sensor does not communicate with their Medtronic pump they see the benefits of sensor augmented pumping. The simple fact is many of these Medtronic patients are very comfortable with their pump and see no reason to change or upgrade yet they do value the information provided by a CGM and Dexcom has earned the reputation as the best CGM system.

The harsh reality is not much will change in the insulin pump market until someone finds a way to compete more effectively with Medtronic. For years Diabetic Investor has argued that it is not merely good enough to outperform Medtronic from a technology perspective, that it will take more than superior technology. If all it took was superior technology to win over patients Medtronic would have been in major trouble already.

This is one reason we are so intrigued by the folks at BigFoot as it’s not just their technology which looks good but their pricing model is equally intriguing. Let’s face facts as much as we believe in sensor augmented pumping these systems aren’t cheap. And it’s not just payors who feel this way but patients too. Add the cost of sensors to normal pump supplies, which average almost $3,000 per year, even patients with good insurance coverage are paying a pretty penny. Simply put sensor augmented pumping isn’t cheap from any perspective. It will be interesting to see if BigFoot’s lease versus buy pricing model combined with their innovative technology changes anything.

Some will say it won’t work based on the fact that Insulet has already tried and failed with this pricing model. We disagree as payors aren’t stupid they like Diabetic Investor know that the OmniPod isn’t really cheaper than a conventional pump. That the OmniPod even with its lower upfront cost reaches cost parity with a conventional pump in year 3. The fact is if BigFoot is going to succeed they must not just convince patients, physicians and CDE’s they have a technology superior system that works. They must convince payors, who hold the keys to the kingdom, their system is more cost effective.

This is a major reason Animas, Insulet and now Tandem have not been more successful. Rather than change the paradigm they are playing a rigged game. Yes, each has some advantages over Medtronic but the fact is as we have already noted having superior technology is not enough. Think of it this way, Red Auerbach is acknowledged as one of the greatest basketball coaches of all time. Auerbach did not just have superior players he changed the very nature of how basketball was played, he changed the paradigm.

This is exactly what’s going on in the insulin pump market everyone is playing Medtronic’s game, so far no one has dared to change the paradigm.