When everyone has one it’s not special anymore

Way back in the day before the advent of CGM when SMBG ruled the diabetes device kingdom any innovation by one company was quickly copied by the others. Alternate site testing, smaller blood samples, faster test times and no coding are some examples. This copycat psychology is now being duplicated with insulin pumps, CGM and connected pens. Yes there are some small differences between these toys, but a well-trained, properly educated and well-motivated patient will succeed no matter which toys they play with.

The toys in the toy chest aren’t the only diabetes tools where innovation is quickly copied and duplicated. This happens with drugs and now digital patient coaching platforms. You can’t swing that poor dead cat without hitting these platforms all of which are beginning to look the same. They may use slightly different methods but in the end they all do about the same thing the same way.

This copycat duplication strategy then leads to commodization, which in turn leads to price contraction. This happened in SMBG, long-acting insulin’s, SGLT2’s and is now happening in CGM, insulin pumps and soon connected pens. As Momma Kliff used to say when everyone has the same damn thing, when it’s not special anymore it’s foolish to pay more for one toy over another. While Mom did not work with payors, they do follow her philosophy.

Since payors hold the keys to the kingdom with formulary position and since the toy makers and drug companies need scale this creates a dynamic that clearly favors payors. They know they can play the companies off each other. They can do this when all the toys or drugs in category do basically the same thing the same way. This cycle has played out time and time again.

For anyone to think this cycle won’t play out in digital diabetes is just fooling themselves. Payors may not be in control here, but employers are, and they aren’t any different than payors when it comes to wanting to save money. The digital diabetes companies are no different than drug or toy companies as they need scale to make money. Now that everyone in digital diabetes is doing the same thing the same way with little difference between platforms employers have the upper hand. They will use this leverage to demand and receive lower costs just as the payors used it and got lower prices.

Just as toy and drug companies adapted with co-pay equalization programs to offset a competitor’s formulary advantage, the digital diabetes companies will use at risk programs with employers. As we noted yesterday there is nothing cheaper than FREE and that’s exactly where this market is headed. The more well capitalized digital diabetes companies will use their financial strength like a hammer to pound their less well capitalized competitors into the ground. They can go 100% at risk getting paid only for results because they can sustain their programs given their financial strength.

This isn’t an exact parallel, but this is what Medtronic has done with their use of exclusive contracting. Medtronic is forcing the competition to make a very difficult choice, match them on price or surrender and lose access. Either way the payor wins as they get a lower cost. The payor could care less which pump they offer all they care about is money. Medtronic has the financial strength to do this and isn’t afraid to use it.

Any well capitalized digital diabetes companies can play the same game. They go into any employer tell them they will take all the risk, no upfront costs and only get paid IF they succeed. Or they can pay a per patient per month fee for every enrolled patient and will pay no matter what the results. Even if there were differences in these platforms which there aren’t the employer would be hard pressed to find a reason not to choose the at-risk proposal as they have nothing much to lose and everything to gain.

In the digital space given the low barriers to entry, lack of any real defendable IP commodization is occurring at a rapid pace. To us it’s not a question of if at risk contracting becomes common but when.