A lesson learned?
Vernon Law, a former baseball player once stated; “Experience is a hard teacher because she gives the test first, the lesson afterward.” Now we realize Mr. Law wasn’t referring to the insulin pump business but his quote is a perfect description of just how difficult this market is.
Yesterday we reported on the rumors that insulin pump market leader Medtronic (NYSE:MDT) is about to acquire Tandem Diabetes (NASDAQ:TNDM). A move which we believe will become fact in the near future. Yet we wonder whether the Tandem experience will teach anyone a lesson. We say this because many believed that Tandem would do what no one else has been able to, namely give Medtronic a serious run for their money.
When Tandem first came onto the market with their t:slim pump and its Apple like design and very user friendly patient interface many believed it would be a hit. That given the option patients would prefer a device that was easier to use. A belief that was not completely shared by Diabetic Investor, not because we did not see the user interface as a competitive advantage rather because we understood how tough this market has become.
The fact is while there are slight differences between pumps they all do basically the same thing the same way. It’s also known that a well-trained patient could use any pump and experience better overall outcomes. The reality is which pump a patient uses is almost immaterial and being well trained in pump therapy is what leads to better outcomes.
Still many believed design did matter and with its superior design the Tandem pump would be a major hit. Like so many in this space they drank the kool-aid and ignored the harsh realities of the insulin pump market. We’ve said it many times as building a pump is actually the easy part, it’s running an insulin pump company that takes real talent.
Consider that Johnson and Johnson (NYSE:JNJ) with all their resources has never made money in the insulin pump market. Consider that Insulet, the only wireless system available, is struggling after being on the market for over 10 years. Or what about Roche who spent a hefty sum to acquire Disetronic, then the number 2 player in the market. Remember the Cozmo another pump that was supposed to be a hit, where is the Cozmo today. And no discussion on pumps can miss Asante, remember this was a company all set to go public, where are they today.
In spite of repeated attempts to warn everyone no one wanted to believe what we’ve been saying all along- the insulin pump market is not large enough nor is it growing fast enough to support all the current players let alone the many who want to enter this market.
Listen for all the mistakes made by Medtronic and they have made many one indisputable fact remains; they own this market. No one and we mean no one has come within spitting distance of their commanding market share presence. Not that many haven’t tried yet no one so far anyway has succeeded.
This being the wacky world of diabetes we are no longer surprised that people continue to invest in this space. That these people believe that someone can build a better mouse trap. That they ignore market realities. They continue to believe whiz bang way cool technology will win the day when in reality whiz bang way cool technology is meaningless. Simply put they have not learned from past mistakes which as has been said by many means they are destine to repeat them.
Over the past two years shares of Tandem have fallen over 40%, shares of Insulet are down almost 15% while JNJ is up 6.58% and Medtronic shares are up almost 31%. Granted it’s not fair to compare JNJ and Medtronic with Tandem and Insulet as insulin pumps aren’t their major drivers. Still the performance of Tandem and Insulet should send a very clear message of just how tough this market is.
We should also note that should this deal take place it will put even more pressure on Insulet as they will be the sole remaining independent insulin pump company. Which is ironic given that everyone including Diabetic Investor believed that the company would have been acquired already. Frankly Insulet has become the poster child for how NOT to run an insulin pump company. Insulet proves conclusively that building a pump is the easy part and running an insulin pump company is the true test.
It will be interesting to see what Insulet has to say when they report earnings a week from today. We know where Pat wants to take the company we’re just not sure he’ll be given the time to transform Insulet from an insulin pump to a drug delivery company. Heck we can’t blame him for wanting to get out of this wacky world we’re just not sure he can do that without becoming better at selling insulin pumps. Talk about irony.
One final thought here as this cannot be understated while Al Mann may have missed the mark with MannKind (NASDAQ:MNKD) he has a lasting legacy for what he did with MiniMed. MiniMed not only became the dominate player in the market but also spawned some truly great talent with the now retired Terry Gregg at the top of the list followed by current Dexcom (NASDAQ:DXCM) CEO Kevin Sayer.
Al, Terry and Kevin shows what talent can accomplish and it’s talent that matters.
