A lost lesson – Diabetic Investor

A lost lesson

This past Tuesday Senseonics report results which as expected, well expected by us anyway, weren’t good. There really is no need to review the results however we can’t help but wonder if the Senseonics experience will be another lost lesson. Here is a company which has a good product, a product that works yet a product for which there is no real unmet need. Like so many diabetes device companies and Senseonics is no different is also an example of what happens when a greater fool does not come along to save the day.

Some will blame the COVID crisis for the demise of the company, but this would be a mistake. Senseonics did not fail because of COVID, it failed because they could not run a commercially viable CGM business. COVID was just the final nail in the Senseonics coffin, it contributed to the demise but did not cause the demise. Had COVID not come along the company would have still failed it just would have taken a little longer.

Think about this just for a moment as Senseonics was in the hottest space in diabetes technology, CGM. A market which is growing like a weed. And as we noted it was a good product, a product which worked. Yet as so often happens the company and its supporters could not come to the realization that this product really didn’t solve a problem. As has been said before it was a solution looking for a problem to solve.

Making life more difficult for the company was they were up against two well run well funded competitors who were kicking ass and taking names, Dexcom and Abbott. Even so there was a place, albeit a niche, for an implantable CGM the product Senseonics made. Yet rather than exploit this niche the company tried to position themselves as a product for the masses. This played right into the hands of Dexcom and Abbott and only made life more difficult for Senseonics.

To some extent we can understand this reluctant to embrace the niche they filled as the investment community and analysts would have lost interest. Rather than be a big fish in a small pond the company wanted to be seen as a major player in the growing CGM market. This would have led to a higher share value and perhaps attracted the interest of a suitor.

Today there are a plethora of Dexcom wannabees most which go around saying they are going to be just as good as Dexcom only cheaper. Which when you think about it plays directly into the hands of Abbott who with the Libre has firmly entrenched themselves as the value option in CGM.

Never mind these companies have yet to submit anything to the FDA. Never mind that none of them have demonstrated that they can manufacture their systems on a massive scale or get onto formulary or even into the hands of patients. Nope they all run around claiming hey we are just as good as Dexcom only cheaper. What none of them have done is demonstrate they can run a CGM business. We hate to be redundant, but it doesn’t take an advanced degree to come up with a CGM, but it take a huge amount of talent to run a CGM company.

Dexcom and Abbott are not successful just because they have good products. They are successful because they know how to run a CGM unit and/or company. They understand that getting the damn thing to work is just one step in the process. Both companies have demonstrated the ability to make their products on a massive scale, get them on formulary and into the hands of patients. Patients they are able to support.

Yet all the wannabees continue to attract money to survive and all because of one simple reason. These investors believe strongly in the greater fool theory that some big company will come along and pay handsomely for the privilege of getting their head bashed in by Dexcom and Abbott. We’ve seen this scenario play out time and time again in the insulin pump space with companies spending a fortune to have their heads bashed in by Medtronic, the former king of the insulin pump castle.

Most of these companies have nothing unique, they have no distinct competitive advantage, nor do they have better technology. All they claim to have is a cheaper mouse trap and that’s why so many fail. They are playing to the crowd hungry to get on the CGM gravy train. Investors reason that since diabetes continues to grow at epidemic rates, that with CGM becoming the standard for glucose measurement, with CGM usage exploding that a rising tide will left all the boats. In their minds they believe that they do not need to garner a large market share, that they can do perfectly well establishing themselves as minor player in a huge market.

This is not the first time we have seen this in glucose monitoring. Back in the days before CGM, when BGM ruled the glucose monitoring universe we witnessed hundreds of companies trying to compete with LifeScan, Roche, Abbott and Bayer (now Ascensia). Combined these companies controlled almost 90% of the BGM market. Yet back then BGM usage was growing just as CGM is growing today. Reimbursement rates allowed for fat margins as products were made for pennies and sold for dollars. Everyone wanted a piece of the BGM pie.

Again investors believed a believed a greater fool would come along. AgaMatrix, now Waveform, was the Senseonics of BGM. They had an excellent product and actually was one of the better run BGM companies. Yet they missed their window, reimbursement rates changed, and this once very promising company never realized their potential. Ironically the company is now playing the CGM sandbox and like their BGM offerings has a promising product. Will they suffer the same fate in CGM as they did in BGM only time will tell.

A long time ago a well-respected diabetes device executive told us that too many companies are built not to be run efficiently and effectively. They are built to be acquired and if that doesn’t happen they end up in big trouble. Insulet is a perfect example of this as the company was not built to be a major player in the insulin pump space, they were built to be acquired. When that didn’t happen disaster struck. Thankfully after a change in management the company turned itself around and is now a very well-run insulin pump company. Insulet is a rare example of a company that learned from past mistakes.

We know everyone hates it when we talk about the business of diabetes, but diabetes is a business a huge and complex business. Success is not determined by whiz bang way cool. It is not determined by building a better mouse trap. It is not determined by developing solutions first and finding the problem later. It’s determined as one ex-executive used to say by doing the mundane blocking and tackling of running a business. We know this isn’t pretty or way cool or whiz bang. But it is essential in running a commercially viable company. Without the big uglies upfront clearing the way that speedy running back won’t have holes to run through nor will that handsome quarterback have time to find his receivers.

Teams that win and win consistently know this, they invest in this and they aren’t distracted by the shiny new objects everyone has become fascinated with. While we don’t know Tom Brady, Terry Bradshaw or Joe Montana nor did we know Walter Payton, Barry Sanders or Emmitt Smith we’ll take it to the bank these great players will be forever grateful for their big uglies, the men who protected their backsides and gave them time to throw or open the holes they ran through.

The big uglies may not get all the endorsement contracts or marry super model wives but without them their teams wouldn’t win. And that my friends is the object of the game. The business of diabetes is no different unfortunately far too many investors are fascinated with the shiny new toy and this is why they don’t survive.

Author: wpadmin

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