Who will survive?

Who will survive?

Greetings from one of the most beautiful cities to host a conference San Diego. Yes, the annual gathering of diabetes educators is underway and once again the question needs to be asked; what will this conference look like 5 years from today? Walking the exhibit hall all we could think about was which of the companies exhibiting here has a realistic chance of being here 5 years from today. And we are not just talking about the smaller players the ones with the way cool whiz bang cloud enabled devices which talk to equally cool apps.

A secondary question which we covered before we got here should also be asked again – just what role will these dedicated and passionate professionals play in the future? Can this profession transition itself so it remains relevant five years from today?

Let’s look at the business side first and by our estimates 80% of the companies presenting here will NOT be here five years from today. Some will get swallowed up but most will simply cease to exist as they will no longer be relevant. First up on this death march are the many conventional glucose monitoring companies presenting here. Old school technology which will become obsolete and be replaced by continuous glucose monitoring. It doesn’t help any either that the fundamentals of this business have collapsed and even with massive scale it’s getting tougher and tougher to maintain any reasonable margins.

Next on the hit parade are all the insulin pump companies not named Medtronic (NYSE: MDT). While things seem to be improving a little for Insulet (NASDAQ: PODD), Animas, a unit of Johnson and Johnson (NYSE: JNJ), Tandem (NASDAQ: TNDM) and Roche, yes Roche still sells insulin pumps – none of these companies will make it as stand-alone entities five years. You can add Bigfoot which we did not see here to this list as well.

Rounding out the device side of things we might as well throw in all the CGM companies not named Dexcom (NASDAQ: DXCM) or Medtronic. Yes, the CGM wannabes have some way cool whiz bang stuff but they lack what they need most – money. Given the way this market is developing these CGM wannabes just cannot compete effectively. As much as we believe in CGM this market is headed down the same path as BGM and insulin pump – it is not large enough nor is it growing fast enough to support everyone who wants to play in this sandbox.

Yet this death spiral is not limited to devices and extends to drug companies too. Here we see things developing slightly different than the how device companies will cease to function. While whole companies in the device category will fall into the abyss, the fall of drug companies will come category by category. The insulin market is the first to be hit by this tsunami, something that became obvious after all the insulin companies reported earnings. Next will be oral medications and then off course GLP-1’s.

The first actually victim is already on life support and it’s just a matter of time before MannKind (NASDAQ: MNKD) can’t bail fast enough and succumbs to the depths of the ocean. At the moment we would place our wine drinking friends in France and the folks at AstraZeneca (NYSE: AZN) on the critical list. Neither company has a clue about how to survive nor does either one have a coherent well thought out strategy to deal with the future. Even if they did neither has demonstrated the ability to actually execute a strategy, heck let’s be honest these two companies are so poorly managed they would screw up a winning Powerball ticket. And Sanofi (NYSE: SNY) already has.

The two powerhouses Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) will likely make it but not without making some changes. Right now Lilly is ahead of Novo who must come to grips with the fact that there is no longer something called premium reimbursement. Novo should also consider getting away from their reliance on injectable medications and grab some oral assets. Yes, their oral GLP-1 is truly exciting but it’s years away and they need to supplement their portfolio with other oral medications. Although we view this as a long shot the Astra diabetes portfolio would fit very nicely and allow Novo to go head to head with Lilly.

Personally we’re rooting for Sanofi and our good buddy Serge to make a run at Astra as it would provide for some truly outstanding copy.

The reality is the companies which will survive and prosper in the future aren’t even exhibiting here, although they are not far away. Yep, north of here about 7 hours by car or a little over an hour in a plane is where the action is.