A Different Ending?

A few quick observations before we get into the gist of today’s post. First and this is in line with how our wacky world is changing this show which used to be dominated by drug companies has become more of a toy fair. That poor dead cat can’t be swung without hitting a CGM, insulin pump or app company. The drug companies are here, and we must admit we miss the Novo spaceship, but their presence is toned down compared to previous years.

As we keep saying when it comes to the diabetes drug business this has become a commodity business. Payors remain firmly in control with the drug companies competing not with data but rebates and discounts. Each seems to be embracing technology as a means to differentiate themselves however with the possible exception of Novo with insulin pens these drug companies just don’t understand the device side of diabetes. To say they are clueless is a vast understatement.

We also find it funny that one of the most common phrases we keep hearing from the many CGM companies is “Hey we’re going to be as good as Dexcom”. Which is typically followed by “We’re going to be cheaper too.” To wit we say good luck. Ask them how they plan on competing in the real world, how they will successfully commercialize their toy and get it into the hands of patients and these toy makers look like that deer staring straight into the headlights.

The same can be said about all the insulin pump companies who want to take down the evil empire. Like the CGM toy makers each has a different theory as to why their toy will be rebel force that destroys the Death Star. Yet just as the Death Star was destroyed not because of the rebel force rather due to a design flaw discovered by the rebels, the same can said here. Just as the arrogance of the Empire lead to their eventual downfall, the same thing could happen here.

As we have written many times to date no one has been able to dethrone the king. JNJ tried and failed. Roche tried and failed. Asante tried and failed. Insulet and Tandem are trying today but so far anyway the more things change the more they stay the same. However, this time around things MIGHT be different, there actually could be a different ending to this movie we have seen so many times before. That instead of Ilsa getting on the plane she remains with Rick and they live happily ever after.

Before we get into why this COULD happen a little history lesson. In the past every time the empire was threatened, every time it appeared their dominance was about to end the root cause of the problem wasn’t brought about by the competition. The root cause was the empire itself. Going all the way back when MiniMed was independent company and not owned by Medtronic this was the case. Yet each time it appeared the goose that lays the golden eggs was about to become a dead duck, the problems were identified and fixed.

So what’s different today? Does not Medtronic own this market with a market share about to cross the 80% threshold? Is it not true that they own the most valuable piece of real estate when it comes to pump selection; formulary position? Is it not true they have the largest installed user base from which they can continue their dominance? Although not viewed favorably is it not also true that the Medtronic brand helps their cause? Is it not also true that their competitors lack the resources to compete?

Here is what COULD be different this time;

1. Once viewed as a slam dunk the demise of Animas is not going as anticipated. While we still believe the company will capture the lion share of these patients. What once looked like a sure thing has become a battle. There are several reasons for this which will become evident as you read on.

2. The 670G itself is an issue or more specifically the sensor that works with the 670G. Now that there are two CGM systems which do not require calibration, the Dexcom G6 and FreeStyle Libre from Abbott, a growing number of physicians are telling patients to wait for the new Tandem system or the DASH coming from Insulet.

3. These same physicians note that unlike the TypeZero algorithm the Medtronic algorithm is just too conservative. It’s not like the Medtronic algorithm is bad its just they see the TypeZero algorithm as better.

4. The 670G is just too damn complicated to use. Yes it works but getting it to work and work as intended takes too much effort. Now this wasn’t an issue when it was the only hybrid closed loop system approved by the FDA but it is now.

5. Now this point cannot be understated as physicians and patients are ACTIVELY looking for reasons NOT to select a Medtronic system. As we have noted in the past these people HATE and we do mean HATE the empire. Yet in the past there wasn’t much they could do about it. Now that Tandem is on solid financial footing, Insulet has the DASH coming they have options, they can fight back.

6. Another point that cannot be understated and this is a BIG one Medtronic has a hardware problem they must deal with. No there is nothing structurally wrong with the 670G until you consider it doesn’t have Bluetooth built into the pump. That the pump does not communicate directly with the cloud. Now this is a problem the company is going to fix but it’s a nightmare as it’s not a software update that can easily installed. THIS IS GOING TO REQUIRE A HARDWARE REPLACEMENT.

Based on the companies most recent statements there are some 70,000 670G’s in circulation. Systems which must be replaced when the new pump is ready. Given that the 670G has been here less than a year we don’t see anyway the company can easily sell the new system without pissing off those who have the first version. Will they charge these patients for the upgrade? Will they give it away for free?

Let’s take the first option as an argument can be made that the early adopters of the 670G knew what they were getting so it seems logical that they should pay for the upgrade. This may seem logical until you consider the PR nightmare this will create. Keep in mind this is the same company which CHARGED patients $300 claiming they could get the $300 back. They commanded their mistake by calling this a FREE conversion. They later corrected this but the damage was done.

Giving the new system away is a financial nightmare. Let’s say the internal cost of the new pump is $500 multiple that by 70,000 units and bam say goodbye to $35 MILLION smackers.

All this happening while Tandem gets approval for their new Basal IQ system and will soon have a closed loop system of their own. Insulet is launching the DASH as they move to a closed loop system too. And Tyler is on his way too as Lilly, Novo and Sanofi all are moving in this direction. Oh and should we mention that Lilly has their way cool toy in the way.

Now let’s be very clear here as we have seen this movie before. We have seen how the empire either got in their own way or flat out screwed up. We have seen them proceed down this road before and it looked as if nothing but disaster was ahead. Yet each time the company averted disaster and marched merrily along and that goose instead of being cooked continued to lay those golden eggs. So please understand if we are just more than a little skeptical that it will be different this time around.

That being said this movie as much as it may be a remake seems different. That the dominoes are lining up in favor of the competition and if the game is played correctly COULD fall in their direction. A series of events are happening at the same time, some created by the empire itself others out of their control.

We’re not quite sure if the rebels have found the plans to the Death Star. That they have discovered among that huge structure there is a simple albeit difficult to get to fatal flaw. Nor are we sure they have found their Luke Skywalker to lead the rebel attack.

Still something in our gut tells us that it COULD be different this time. That while Ilsa won’t stay with Rick at the airport, that these two lovers will find themselves later in life. And let’s be honest who doesn’t want Ilsa and Rick to end up together. Here’s looking at you kid!