WDD – Anything to celebrate?

WDD – Anything to celebrate?

Tomorrow November 14th is World Diabetes Day which begs the question what exactly are we celebrating. Not to rain on anyone’s parade but diabetes continues to grow at epidemic rates, we are no closer to a cure than we were last year at this time and a strong case can be made that in some respects we’ve gone backwards rather than forward. This is not to say that progress has not been made or that there have been no positive strides made.

Given that Diabetic Investor focuses on the business aspects of diabetes we find little comfort that from a business perspective things are any better. Take a look at the year to date performance for companies who play in this wacky world;

Sanofi (NYSE:SNY) down 5.59%

MannKind (NASDAQ:MNKD) down 52.90%

Insulet (NASDAQ:PODD) down 27.99%

AstraZeneca (NYSE:AZN) down 11.96%

Medtronic (NYSE:MDT) up 3.48%

Lilly (NYSE:LLY) up 15.86%

Novo Nordisk (NYSE:NVO) up 26.04%

Johnson and Johnson (NYSE:JNJ) down 3.81%

Dexcom (NASDAQ:DXCM) up 52.01%

Tandem (NASDAQ:TNDM) down 20.55%

Becton Dickenson (NYSE:BDX) up 7.22%

With three notable exceptions Dexcom, Novo Nordisk and Lilly 2015 hasn’t exactly been a great year. Looking at the performance of Insulet, Tandem and Medtronic this has been a particularly tough year in the insulin pump space. The same can said for Sanofi and AstraZeneca two companies whose diabetes franchises are struggling.

Frankly we are not surprised that Dexcom, Novo and Lilly are leading the pack as these three companies share several common traits. Novo and Lilly have firmly reestablished themselves as the leaders in the ultra-competitive diabetes drug space. Hardly a surprise given their long and very distinguished histories in diabetes. Dexcom as we have said many times is the posterchild for how a diabetes device company should be run. There is no finer management team in all of diabetes.

Of the laggards we see Medtronic having the best chance at recovering as their results are not directly impacted by diabetes. The fact is Medtronic diabetes is back on track and doing quite nicely. Under new management the franchise has a well thought out plan in place and if executed will help the franchise grow beyond their current dominate position in the insulin pump market.

JNJ has room for optimism as Invokana continues to perform well, the Animas Vibe looks to be a winner and while the blood glucose monitoring market continues to suck LifeScan continues to grow share.

It should surprise no one that the companies facing the toughest test are Sanofi, AstraZeneca and of course MannKind.  Frankly we see little reason to be optimistic about any of these companies as each faces some major obstacles. Nor do we believe that any of these companies has the talent to turn things around. Olivier is about to decimate his franchise, while Pascal is still kicking himself for not agreeing to be acquired by Pfizer. And as we all know MannKind is on life support with the end coming when Olivier finally pulls the plug.

We hate to be redundant but what these results and outlooks show is that talent matters and in the wacky world of diabetes talent is in short supply. Looking ahead to next year Diabetic Investor can’t help but think that the strong will get stronger and the weak, weaker. The harsh reality is Sanofi had their day in the sun and they lack the tools for a sustained recovery. Our wine drinking friends will likely remain in the business yet will be relegated to also-ran status. Baring a major overhaul we don’t see AstraZeneca doing much better as they are too big to be nimble and too small to compete with the big boys.

By this time next year it’s possible, more like probable that Tandem will be in the hands of another player and that Insulet could be out of the insulin pump market. Both companies face an uphill battle and neither has the resources to effectively compete. Of the two we see Tandem being more valuable.

So as we approach World Diabetes Day we ask again what exactly are we celebrating.