This week, a big news item within the diabetes online community was the official U.S. introduction of the iBGStar blood glucose meter – the one that plugs into an Apple iPhone. If you hadn't heard the news, don't worry. The news is interesting, but don't crack open the champagne bottle just yet. Read on for details ...
My followers may recall that late last year (on December 7, 2011, to be precise) I was the first one to share the news to the diabetes community via Twitter that Sanofi and AgaMatrix had announced that the U.S. Food and Drug Administration (FDA) had granted it 510(k) premarket clearance for the iBGStar Blood Glucose Monitoring System. Effectively, that meant an approval was forthcoming, and the companies could actually start talking about the device – legally.
Sanofi: A Long History in Diabetes Care (With Routine Rebranding)
This company has a lengthy history in the diabetes market, going back nearly as long as Lilly and Novo with an original license for insulin from Banting himself. The most noteworthy predecessor to today's Sanofi based in Germany was known as Hoechst, and that company was one of the first to commercialize insulin in Europe, and they still dominate the German and Austrian markets for regular human insulin with the "Insuman" brand, as well as selling newer analogues like Lantus and Apidra. Hoechst merged with French pharmaceutical company Rhône-Poulenc in the late 1990's, changing it's name to Aventis Pharmaceuticals. For a number of reasons, Aventis elected to sell only insulin analogues in the U.S. market back in the late 1990's, and one product in particular remains the world's best-selling insulin (at least until it's patent expires in a just a few years) known as Lantus. Frankly, the reasons for that #1 position aren't great news: millions are developing type 2 diabetes, and unfortunately, many general practitioner/family doctors who put their type 2 diabetes patients on insulin tend to take the easy way out and load them up on basal insulin alone, hence Lantus is the product of choice to do that (most studies suggest that a majority would be much better off on a basal/bolus regimen, but that's a separate conversation).
Merger upon merger resulted in many name changes for the company over the years, hence Sanofi-Aventis dropped Aventis a few years ago (a merger with another French pharma company by the name Sanofi was orchestrated by the French government to ensure that France kept a global pharmaceutical company based in that country), but Sanofi's forray into testing supplies is still pretty new, and is one area European rival Novo Nordisk has little involvement in (the closest thing was Novo's partnership with J&J OneTouch in a now discontinued combo injection/testing device known as InDuo, see http://goo.gl/xc30c for details) which launched in 2001 but was discontinued several years later.
More directly to point of this post, back in March 2010, Sanofi and AgaMatrix had signed an agreement for the development, supply and commercialization of Blood Glucose Monitoring. The company known as AgaMatrix received seed funding from AMG Medical, a Montreal-based venture capital company best known for it's association with Robert Oringer, a man perhaps best known for commercializing private-label lancets to market back in the 1980's, but also helped seed many d-related companies including Can-Am Care Corp. (now Dex4, which was acquired by Perrigo in January 2012) and various others to market. In any event, the AgaMatrix deal with Sanofi was seen as helping bring this product to a global diabetes market. iBGStar was the result of this partnership agreement.
Sanofi's Goal: Global Leadership in Diabetes Care
A few years ago, when Sanofi announced it aimed to unseat Novo Nordisk as the world's largest diabetes company (see HERE), many Wall Street investment analysts laughed. Even today, many remain skeptical of that goal.
iBGStar Supplies Still Not Covered By Many Insurance Plans
Sanofi still has it's work cut out to get it's iBGStar testing supplies (like strips) on a majority of the big insurance formualaries. A quick, non-scientific internet search of various insurance company formularies revealed that iBGStar test strips don't appear to be covered (yet) by most of the U.S. biggies: United Healthcare, Wellpoint, Cigna, Humana, Aetna and Kaiser, just to name a few of the major carriers who collectively dominate the U.S. healthcare landscape today who still don't cover them.
J&J overwhelmingly dominates there, with it's not-so-great OneTouch Ultra product line having an estimated coverage of 90% of all healthcare plans as they like to tout in the company's advertising. I was also surprised to learn that another player, Roche's Accu-Chek, has nearly as widespread coverage – I would put them at around 80% to 85% coverage – suggesting that Roche has done much of the hard sales work, even if it's product line doesn't yet thrill consumers like Sanofi's new product does. Other testing giants, like Abbott's Freestyle and Bayer's Contour also don't seem to have anywhere near the same level of insurance coverage of the market, which is a very tough but necessary job.
Want Versus Need
While I believe Sanofi does have the staff and the willingness to gain widespread insurance coverage for its testing products, they simply aren't there yet. Patients may want the product, but how many are willing to pay for strips out-of-pocket when insurance will pay for strips on another meter brand? Having a really cool product doesn't mean all that much if no one pays for their testing supplies. Also, an estimated 80% of the testing supplies sold in the U.S. market are paid for by private insurance, with the remainder being paid for by the government (Medicare, primarily, and Medicaid) and a tiny handful who still pay for these things out-of-pocket.
Work Around For Lack of Coverage: Star Savings Program
To counter the not-so-small problem of coverage (or lack thereof), Sanofi has announced what it's calling the "Star Savings Program" to try and subsidize those with higher insurance co-pays to help with the co-pays so out-of-pocket expense won't be more than $20. Whether that even gets the strips at the mail-order supply firms used by the big insurance companies is unclear (my old plan's supplier didn't even carry them or any others from AgaMatrix), and I haven't fully investigated how the subsidy plan works if the strips aren't covered at any level by some plans, but clearly, Sanofi acknowledges they have work to be done in the coverage area and is offering this as kind a work-around until they manage to secure more widespread coverage.
They know their product is on the wish list for a fair number of patients, and they now have the inventory to supply them to most anyone who wants one. Now, the key is getting insurance to pay for it.
Sanofi Cannot Hitch Diabetes Growth Aspirations to Apple Alone; Try Samsung
Now, Apple's share of the smartphone market is widely believed to slipping (it has less than half of global sales in spite of continued robust growth for Apple). Google's Android, which numerous other manufacturers use because of it's open system architecture, lacks much of the standardization in terms of product design or even the core operating system, making it a much tougher nut to crack. Unlike Apple, one cannot develop something like they can for iOS because of differing hardware, countless versions of the operating system, etc. Yet Android is something like Windows for smartphones, whereas iOS is more like Macintosh. Technologically prettier than Windows, Macintosh (and, likely iOS) is probably better (and easier to develop software for), but isn't widely used by anyone except Apple and a few specialist industries like graphic designers. Yes, Apple's financials are very healthy these days. But who remembers the ill-fated days when Apple tried to license the Macintosh operating system? Yes, former CEO John Sculley did license it for a time, but by then, few manufacturers could even be bothered with it. Today, Macintosh has about 5% share of the personal computer/laptop market. Microsoft's Windows rules the market even if it's an inferior imitation of the Mac. Licensing Mac operating system did happen (albeit briefly) before Mr. Jobs returned to turn the comany he helped start around. He managed to do that, and today, Apple is one of Silicon Valley's stars, but that doesn't mean Sanofi can rely on Apple alone to become leader in the market.
The market doesn't work like that. Will Sanofi's leadership aspirations hitch it's growth hopes and aspirations to a single, premium-player like Apple's iOS, or diversify beyond Apple to sell billions more? If I were Sanofi, I believe the answer to that question would be very darn clear.
Strips Is Where the Money Is Made, But It's A Volume-Driven Business
Let's face it: the margins on test strips (which is where everyone in the business makes their money) are very, very low. That means to make any real money in this business, you really have to sell millions (or better yet, billions) of them every year. The reality is that partnering with Apple alone won't be enough to help Sanofi sell billions of test strips, which is how they're likely to make money (and become a market share leader). Yet with Android, its not as easy to work with as it is with Apple iOS. Yet among the Droids, Samsung is emerging as the dominant player (see http://on.wsj.com/Ifrnfa for the Wall Street Journal article covering that news). Others, like HTC (and even Motorola, which will likely become part of Google assuming antitrust regulators give it the go-ahead is likely to remain a player, but that's not why Google wants to buy them, its for the patents) don't seem to have Samsung's growing presence in the smartphone market. How easy would it be to work with Samsung? Sanofi won't know until they ask.
Lessons From The Mobile Apps Market: Ignore Android At Your Own Peril
Consider the case of Starbucks' mobile payments application. American Banker reported that back in 2011, Starbucks had an app for iPhone that enabled consumers to swipe their mobile phone at the register for payments (they also had one for Blackberry, but few Blackberry users had downloaded the app). Demand for Starbucks' payment application, which was not available on Android was so high that a private developer created his own version of the Starbucks app for Android smartphones. His app was downloaded more than 160,000 times by April 2011, in effect, FORCING Starbucks to develop one for Android even though Starbucks wasn't in a rush to go there. Within a matter of a few weeks, the company launched an "official" Starbucks app for Android, but it was only because the company had no other choice in the matter.
While technology isn't always easy, it seems clear that there are a few dominant Droid players (notably Samsung) which Sanofi might be advised to consider working with to get its product to millions more. They can work with others like HTC if they can't get anywhere with Samsung, at least that offers an entree. After all, testing supplies are sold in volumes, and if only a few people are using the product, then its not going to become the market leader, whereas if millions and millions use them, they have a chance to rival J&J.
iBGStar Still Represents A Developmental Milestone
Still, I will go on the record as saying that I think the iBGStar approval is a major victory for patients in spite of not being covered by most insurance plans yet. The reason: clearly, the door has been opened for add-on products to things like mobile phones – the genie has been let out of the bottle! It's theoretically possible that others could emerge in the not-too-distant future (such as a OneTouch Ultra plug-in for your Samsung Android phone? Don't discount the idea!), and that was a major psychological hurdle for the FDA to get it's collective head around.
Is there any reason the future we cannot have testing plug-ins built into your car, your PC at work, or even your TV remote control? Maybe these are just wild visions now, but the notion that a meter could be plugged into a computerized device intended for another purpose has already gained approval, and there's really no reason why the same porting technology couldn't be added to most anything. The meter can theoretically be ported most anywhere now. What's more, having them as add-ons eliminates one more piece of diabetes crap we have to carry around with us, so that's a big victory even if no one pays for it ... yet!
While technology issues aren't always easy, it seems clear that there are a few dominant Droid players (notably Samsung) which Sanofi might be advised to consider working with to get its product to millions more.
The lesson hasn't yet been learned by Sanofi, but it's still early. Sure, people may long for the product, but it has to be widely paid for by insurance plans. Sanofi isn't there yet. Maybe someday they will be ...