A head scratcher

A head scratcher

Having been around this wacky world for 20 some odd years there are just times when you hear something that makes you wonder if people have lost touch with reality. We seem to be seeing more and more of this recently. First in a move that makes no sense whatsoever Intuity Medical is able to raise $40 million to enter a dying, collapsing market. Next there are a host of CGM wannabes out raising money based on …wait for it… non or minimally invasive technology. And of course, there are a bunch of companies trying to figure out if they can make any money at all in interconnected diabetes management (IDM).

Yet a real head scratcher came along yesterday when Becton Dickenson (NYSE: BDX) during their investor day said they are entering … wait for it …the crowded, competitive insulin pump market. This maker of needles and syringes, a very boring but also very profitable business, now wants to sell insulin pumps and not just any insulin pump but a patch pump. This is not the dumb patch pen thing which also seems to be on BD’s radar, nope this is the real thing ala Omnipod.

What baffles us is why are they doing this? Why would they enter a highly competitive market which is growing in the low single digits and is dominated by one company who effectively controls almost 70% of the market? Why would they enter a market which requires around the clock attention? What are they getting tired of owning the needle and syringe market? Are they doing this just to have some fun? Someone needs to explain this to us as we just don’t get it.

Let’s hope they have learned from the mistakes made by Insulet (NASDAQ: PODD) when they came to market. Let’s hope they have realistic expectations. Let’s hope they are bringing a gun to a knife fight because that is what they are going to need to have any chance at all at being successful. The insulin pump market is not for the faint of heart, just ask the folks at Tandem (NASDAQ: TNDM) and Animas.

Listen we know needles and syringes are not very sexy, that this is a very boring business. But BD owns this market, they are the undisputed market leader. It’s not as if this business is threatened either, yes there are some low-cost competitors but BD owns the needle and syringe market the way Medtronic (NYSE: MDT) owns the insulin pump market. So, it only makes sense that Medtronic get away from their competency and enter the needle and syringe market.

Frankly we do not understand this fascination companies have with straying from what they do best, what they are good at, from areas where they are market leaders and going into new areas. Areas where prices are contracting, growth is slowing with established deeply entrenched competition. Just to make matters worse they go in with products which are essentially me-too offerings which basically forces them to play the price game.

We’ve said it before and we’ll say it again all insulin pumps do basically the same thing the same way. Yes, there are some minor differences between systems but nothing that makes a major difference. This will soon be true with sensor augmented systems, the so-called, but not really, artificial pancreases. This is a follow the leader business and now that Medtronic has the 670G, everyone is headed this way. Which is another reason not to the enter this market as it forces you to constantly keep with the Joneses.

Years ago, BD moved into BGM, a move we didn’t understand as the BGM market then was like the insulin pump market today. But the company insisted they knew what they were doing, that they had a better mouse trap. What happened? What happens when a company strays from what they do best, what they are good at and enters a highly competitive price contracting market. They fail. They waste lots of time and lots of money and go back to what they were good at before they went off the reservation.

Another thing we have said repeatedly is almost anyone can build an insulin pump, that’s not the issue. The real talent, the hard part is running a commercially successful insulin pump company. Look at Tandem a company who’s seen their share price drop by some 80% this year. Look at Animas, a unit of the mighty Johnson and Johnson (NYSE: JNJ), a unit that has NEVER turned a profit for the mothership. Look at Insulet who finally after more than 10 years on the market has just reached the 100,000-user milestone. Where is the Cozmo, gone. Where is Asante, now owned by Bigfoot. Where is Disetronic, run into the ground by Roche.

Must we go on. How many times does someone need to be hit with a baseball bat before they understand this is not a pleasant experience. BD is a well-run company that happens to be in a very boring but very profitable business, needles and syringes. This business is not facing any major or serious threats. They also should know that the last time they went off the reservation it didn’t work out all that well. That they are very good at needles and syringes and boring is not a bad thing. Especially when boring happens to be very profitable.

So why then, why enter the already crowded ultra-competitive insulin pump market? Why enter with what is basically a me-too product? Why go up against an entrenched deep pocketed market leader who will not be shy?

This is a real head scratcher.