Wine and Cheese

Wine and Cheese

Now that Lilly (NYSE: LLY) has decided to enter the insulin pump market, one must wonder how long it will take Novo Nordisk (NYSE: NVO) and Sanofi (NYSE: SNY) to follow. We should note that Novo was an investor in Asante which failed and was bought by Bigfoot after they declared bankruptcy. Yes, if there is one thing we count on in this wacky world it’s there is no such thing as an original idea. That far too often money is thrown at something not because it’s better rather because the competition is doing it, so we should too.

We witnessed this years ago when these same companies all had inhaled insulin in their pipelines. Never mind that none of these projects were worth a dime but with Exubera in the hands of mighty Pfizer Lilly, Novo and Sanofi felt they had to have their own way cool inhaled product. Once Exubera failed we thought this would be the end of inhaled insulin until Sanofi did their deal with MannKind (NASDAQ: MNKD), which of course didn’t work out either.

Although Lilly for reasons only they understand has decided to start from scratch, there are a plethora of options should Sanofi and Novo want to jump in. As we have stated even with all their problems Tandem (NASDAQ: TNDM) has a healthy installed user base and could be had for pennies on the dollar. Even though Johnson and Johnson (NYSE: JNJ) has an agreement with Medtronic (NYSE: MDT) to take on the Animas patient base, we suspect JNJ would wiggle out of this deal if the right offer came along.

Another company that would happily throw themselves into the arms of any company with money would be CellNovo, who it just so happens is based in Paris and recently reported earnings. According to the earnings press release;

“In 2017, Cellnovo recorded sales of €1,058 thousand, down 25.3% compared to the previous year. This decrease reflects the Company’s decision to limit the number of new patients equipped with its system as a result of limited in-house capacity to produce insulin cartridges.”

The release also contains the following passage;

“Sophie Baratte, Chief Executive Officer of Cellnovo, commented: “As recently announced, the implementation of the optimisation plan for the mass production line with Flex, our manufacturing partner, is on track. Although sales of new systems remain limited, recurring revenues from sales of insulin cartridges are growing. Sales over the last quarter were in line with expectations.

In parallel with efforts to reach large-scale production, we obtained, last December, the CE marking of our next generation system, a Bluetooth® and AndroidTM-enabled micro-pump for insulin delivery. We also announced the launch of the first clinical study for PEPPER, a personalised decision-support solution based on artificial intelligence for the management of diabetes. We are thus well-positioned to be a major player in innovative solutions for the management of diabetes.”

For those who aren’t familiar with CellNovo it’s a OmniPod wannabe and come to think of it Insulet (NASDAQ: PODD) would also happily listen to offers too, but we digress. Anyway, given their physical proximity, the fact they both speak French and likely both guzzle Chardonnay would not CellNovo be a perfect match for our wine drinking friends who just love to throw good money into bad ideas.

Yep just as peanut butter goes with jelly and wine with cheese CellNovo and Sanofi are a perfect match. The CellNovo device is way cool whiz bang and as their press release notes it will soon be cloud enabled. Sanofi has a relationship with Verily who in turn has a relationship with Dexcom (NASDAQ: DXCM) and as the company noted during JPM this gives them access to the Dexcom CGM which could be integrated with the CellNovo system giving them all the makings for … wait for it … an artificial pancreas. Oh my lord think of the possibility.

Just think about this for a moment and look ahead to 2020. Why 2020, well by then we could have a host of insulin pump choices unlike today when patients have just three soon to be two choices. By 2020 besides Medtronic and Insulet Bigfoot, Lilly, Sanofi and Novo all could have FDA approved systems. And guess what by then all of them could also have a Tyler. Now if that doesn’t get the competitive juices flowing we don’t know what does. Payors will have a field day pitting these players against each other extorting the lowest price.

Now will anything change all that much? Not really. Is Medtronic worried? They shouldn’t be. Will patients benefit from having more insulin delivery options? They should but they won’t. Will one of these newbies leave the reservation go nuclear and give pumps away for free and try to make money from the continual sale of pump supplies? You can count on it and believe it or not this is not a new idea. Will this price war result in even worse support for the insulin pump patient? No question as companies in the market won’t be able to make money and provide support that patients have become accustomed too lousy as it may be.

Even if Tandem was some how able to survive think about what 2020 will look like from another perspective. By 2020 Medtronic will effectively control over 80% of the insulin pump market as by then the Animas patients should be fully integrated. Which basically means Lilly, Sanofi and Novo would have one and only one option to gain share, price. Contrary to what Mr. Ricks believes patients will not choose the Lilly option just because it’s different and seriously the more we write that more we can’t believe Mr. Ricks is that naïve.

Given this set of facts we are beginning to wonder just what happens during a meeting when someone comes up with the bright idea to get into the insulin pump market. We would assume that these people have done their homework, talked to all the experts and done some soul searching. We would further assume that some smart people would outline all the options for entering the market. Do we buy our way in or is better to start from scratch?

Next, we would assume that if the decision is made to enter the market someone would ask ok how are we going to make money. Or are we willing to lose money on the pump but make it up on increased sales of insulin. And should that be the case what will the short-acting insulin market be like when our pump is ready. Now if your Mr. Ricks and live in fantasy land you think no way Sanofi does with Amedlog what Lilly did with Basaglar.

Listen we may not be the sharpest tool in the shed but heck this isn’t all that complicated. But given the way these companies are acting and what they are saying these meetings are more like frat parties. That after playing some serious beer pong, throwing back some Fireballs, Jager bombs and a few depth charges someone yells out – “Hey let’s get into the insulin pump business”. Everyone starts high-fiving each other and starts ordering Domino’s as the munchies have arrived due to some now legal party favors.

It’s only after the party is over and they committed millions in money do they realize that maybe this wasn’t such a good idea. That maybe they should have thought this through. That perhaps it wasn’t such a good idea after all and decisions shouldn’t be made just because someone else has a way cool whiz bang toy.

As Momma Kliff used to say while we were in college; “Just remember that decisions have consequences and important decisions should be well thought out and not made in the heat of the moment. Make decisions when you have clear head and aren’t influenced by external factors. For if you don’t that decision which seems like a good idea at the time will come back and bit you in the ass.” While Mom wasn’t referring to the insulin pump business she might as well have been.