Unmeet medical need?

Unmeet medical need?

For years we’ve been following several companies in the patch pen space. The theory behind these products is that they are not as complex as a real insulin pump, yet they are better than insulin pens because the patient doesn’t have to carry around anything. Most of these systems are cheap to make and most are priced at the same level as insulin pens.

So far none of these systems have become way cool whiz bang, something that’s changing. Yet as it stands today these systems can be divided into two categories, some deliver insulin at pre-determined rate and allow for the patient to deliver additional insulin by touching a button. Others only deliver insulin when initiated by the patient, click a button get two units of insulin.

To be honest we have never much cared for any of these patch pens as we didn’t see a market for them. By our way of thinking if a patient wanted continuous insulin delivery a real insulin pump was the way to go. If they wanted control over dosing, an old-fashioned insulin pen was just fine. Now that we have a slew of “smart” insulin pens and “smart” apps we feel even stronger about using a pen to deliver insulin. Add in the newer “smarter” insulin pumps that communicate with CGM we feel even stronger about insulin pumps.

Which brings us back to our problem with these patch pens. Simply put what unmeet medical need do they fulfil? Is there a market large enough for these devices? Our answer to both questions is no, no there is not an unmeet medical need and no, there is not a market large enough for them either. However, our feelings aside this will not stop many from trying to prove us wrong.

One company that’s trying is Valeritas (NASDAQ: VLRX) who reported earnings this morning. Which according to a company issued press release;

• Revenues in the fourth quarter grew 21% year-over-year to $5.8 million from $4.8 million in the fourth quarter of 2016, which represented a 14% sequential increase from $5.1 million in the third quarter and a 4% increase to $20.2 million for the full year ended December 31, 2017 from $19.6 million for the full year 2016;

• Gross margin for the fourth quarter was 45.2%, compared to 37.1% in the fourth quarter of 2016, a year-over-year improvement of 810 basis points and 40.3% for the full year 2017 compared to 35.5% for the full year 2016, an improvement of 480 basis points;

• Over 14 million V-Go’s have now been distributed to and used clinically by patients as of December 31, 2017;

• Advanced development of V-Go Link, a one-way Bluetooth communication accessory for V-Go that will provide insulin use information to patients and their healthcare providers.

Pay close attention to that last bullet point as it points to the problem we have with these patch pens. Yes, adding Bluetooth gives the V-Go patient more information but it also adds to the cost of the system. It’s unclear whether the V-Go Link will be given away for free or if this cost will be passed onto the patient. Perhaps this will be answered during the earnings call which starts after the market closes today. Yet no matter who pays, the company or the patient, this device creates more problems than it solves.

Think of it this way if the goal here is for the patient to make better insulin dosing decisions doesn’t a real insulin pump that’s connected with a CGM do that better? Does not a “smart” insulin pen, CGM/app – a Tyler- do that cheaper? Why would a patient choose a V-Go with a V-Go Link? Or a better question why would a payor favor this system over either a real insulin pump or a Tyler?

We looked over the company’s most recent investor presentation hoping to find some answers. Unfortunately, we didn’t find many. The company states from a cost perspective the V-Go is neutral to both payors and patients. So, the V-Go does not have a cost advantage it is not cheaper. Next looking at the pipeline besides the V-Go Link they also have something called the V-Go Prefilled which as the name indicates is a prefilled insulin cartridge. Well pens already use prefilled cartridges and Ypsomed has a prefilled cartridge for their insulin pump. So, we don’t see this as competitive advantage.

The presentation also revealed a bigger problem as the sales and marketing model is the same as every other device company. A model which requires costly sales reps and costly support personal. Simply put this means making money is going to be a serious challenge. Additionally, these reps and support personal must compete for the physician’s attention. They must go up against insulin pump reps and insulin reps pushing insulin pens.

So again, we ask where do these patch pens fit?

About the only thing we know for certain is that the company like everyone else main goal is get bought. This is the one similarity with every one of these patch pen companies. Our question then becomes just who would buy them. With a plethora of “smart” insulin pen companies available why acquire Valeritas? With an equal number of insulin pump wannabes why acquire Valeritas?

Listen we have nothing against the folks at Valeritas nor do we have anything against the V-Go, but seriously how many patch pen systems do we need? A more important question is do we need them at all? Do they really offer anything different? If they are not better, faster or cheaper what’s the point?

Just what unmeet medical need are they fulfilling?