Tough Year

Tough Year

When it comes to this wacky world there are just a handful of companies that are solely dependent on diabetes. Simply put if we lived in a world without diabetes these companies would not exist. While diabetes is important to companies like Lilly (NYSE: LLY), Johnson and Johnson (NYSE: JNJ), Medtronic (NYSE: MDT) and Sanofi (NYSE: SNY) all would exist if there was no diabetes. However, for companies like Dexcom (NASDAQ: DXCM), Tandem (NASDAQ: TNDM), Insulet (NASDAQ: PODD), MannKind (NASDAQ: MNKD) and Novo Nordisk (NYSE: NVO) diabetes is it.

Take a look at the year to date performance of these diabetes dependent companies:

Insulet -1.08%

Dexcom -20.63%

Novo -38.48%

MannKind -58.59%

Tandem -81.37%

That’s right not one is showing a positive return on a year to date basis, not one. Talk about a tough year. Just to add some perspective to this all the major market indices are showing positive returns on a year to date basis.

Looking at this list of diabetes dependent companies two stand out as having the best chance at recovering; Dexcom and Novo. Tandem and MannKind by way of contrast are on life support. Insulet is a wild card as its future is more difficult to gauge. If the allegations made against the company are proven to have validity the stock will take a major hit. Even if untrue the company has a tough road ahead.

Looking ahead to 2017 Diabetic Investor see this as transitional year on many levels. In the insulin pump market 2017 could be the year when Medtronic, already the market leader gets even stronger making it virtually impossible for any competitor to gain meaningful share. Depending on how aggressive they decide to be in the growing CGM market they could make life difficult for not just Dexcom but Abbott (NYSE: ABT) as well.

Looked at realistically the performance gap between the Medtronic sensor and the Dexcom sensor is closing. Dexcom is still better but eventually the Medtronic sensor will be good enough. When it comes to sensor performance we are quickly reaching the point of diminishing returns when it comes to performance. This will move the CGM market from being performance driven to price driven.

Dexcom is aware of this fact which is why they are working to get their Band-Aid sensor to market. This product will not only be the final nail in the conventional BGM coffin but could be a game changer for diabetes management.

Looking at the Libre from Abbott much will depend on how the company positions the product once it’s available here in the US. Will Abbott play the cost game? Will they try and penetrate the non-intensively managed patient market setting up a future battle with Dexcom? Will they take on both Dexcom and Medtronic and go after intensively managed patients? The Libre has exceeded expectations overseas but the product has been heavily subsidized and as everyone knows the US market is where the action is and the US is a much tougher market.

As we have noted work still needs to be done on the Libre if it’s truly going to compete. The question is will Abbott spend the money to make these enhancements or is Miles using the Libre as bait to finally sell the diabetes device unit? With Google aligned with Dexcom and Medtronic aligned with Watson, the Libre would make a great fit for any of the high-tech companies in the Valley looking to dive into the diabetes pool.  No disrespect to Abbott but based on past performance in the CGM market we don’t see them doing this on their own.

As always, the new year will begin in that beautiful city by the bay with the JP Morgan Healthcare Conference beginning on Monday January 8th.  A conference which has been the scene of many dramatic moments in diabetes device history. It was at this conference when our phone started ringing at 4am, yes that’s 4 in the morning, with people telling Diabetic Investor that Abbott had just bought Therasense, the makers of the FreeStyle. Although largely ignored at the time Therasense also had something called the Navigator in their portfolio.

Back then the Navigator was considered the best CGM and had Abbott not mismanaged this product the CGM market would look very different today. The reality is the Libre is basically Navigator part two and like the original Navigator COULD be a player if properly managed. The question is will this year’s conference reveal news of who will be managing the Libre, Abbott or someone else.

Now we will only ask one favor if news does break please no calls before 6am PST. As always JPM will be a very busy conference for Diabetic Investor and we do need to get our beauty rest, not that it helps but hey at least we can try.