A long time ago in a galaxy far far away

While it seems improbable today there was a time when Apple, yes Apple was on the brink of going under. Way back in the day it was Microsoft that ruled the tech world while Apple was struggling. The situation was so bad that Microsoft considered throwing Apple a life line to stay afloat. Apple back then like today had a loyal following it was just a very small loyal following.

Fast forward to today and Apple is thriving the makers of all things way cool whiz bang. While Microsoft is not struggling they are no longer king of the tech castle. Competitors who were in their infancy back in the day have also leapfrogged Microsoft as well.

This transformation in the tech world did not happen overnight.

We mention this as we’re beginning to wonder if the same transformation is beginning in the insulin pump market. As we noted yesterday after Tandem reported that air of invincibility that has always surrounded Medtronic appears to be slowly dissipating. That cracks are emerging in the armor.

Ironically these cracks have little to do with the pump itself rather the components that work with the pump. As sensor augmented systems become the standard the pump has become basically a commodity with the CGM and insulin dosing algorithm becoming the more critical components. As we have noted previously all pumps do basically the same thing the same way. However not all CGM’s or insulin dosing algorithms are created equally.

More ironically Medtronic is about to become the victim of their own success. What the 670G has proved is that sensor augmented systems work and do produce better patient outcomes. The 670G has paved the way for the systems that could end up killing the goose that lays the golden eggs.

Perhaps the best way to think about this is look at the history of the cellular phone market, a market which as we noted yesterday was once dominated by Motorola. The Motorola flip-phone was the hottest thing going back in the day and seemed invincible. Apple had their iPhone but way back then it was not the must have product that it is today. Yet Apple concentrated on the user experience and literally changed the market with superior design. Today nearly every smartphone is designed with the iPhone in mind.

We can’t remember when it was but a few years back Tandem gave a presentation at JP Morgan that compared their system and the Medtronic system. While the Tandem system looked and felt like the way cool whiz bang iPhone, the Medtronic felt and looked like a clunky pager. This really wasn’t surprising given that when the Medtronic first came out pagers were considered way cool whiz bang. Tandem coming out years later had the benefit of seeing how Apple changed the user experience.

Up until today this has always been the major strength of the Tandem system, it has a better patient interface. The pump itself was no different than what Medtronic offered it was just more patient friendly. Ask any patient who has been on both systems and they’ll tell you when it comes to the user experience the Tandem pump wins hands down.

Today however as we noted with sensor augmented systems the user experience extends to the CGM used with the systems. And just as the Tandem pump has a better user experience than the Medtronic pump the Dexcom G6 has a superior user experience when compared to the Medtronic sensor.

The next weak link in the 670G is its insulin dosing algorithm. While there is nothing wrong with the Medtronic algorithm most key opinion leaders characterize the algorithm as overly conservative. We understand why Medtronic went down this path but this conservative approach will likely come back to haunt them. Anyone who has seen the data for Tandem’s coming closed loop system which uses not just the Dexcom G6 but the TypeZero insulin dosing algorithm cannot argue with this. This data was more than impressive.

Again, as we noted yesterday it won’t be long before Tandem has the best toy in the toy chest. But as we also noted yesterday having the best toy in the toy chest does not guarantee the system will be a commercial success. That will only come if Tandem can play in the space owned by Medtronic, formulary position. Medtronic owns the most valuable piece of real estate forcing their competition to play defense.

Medtronic has taken full advantage of their huge installed user base and payor relationships. And quite honestly, we can’t blame them. This is no different than Google taking full advantage of their dominance in internet search or Amazon taking advantage of their dominance. When you have a virtual monopoly as Medtronic does it would be foolish not to use this advantage to fend off competitors who have better technology.

However, should payors begin to change their approach watch out. Up until now payors looked at the insulin pump market as a market of one. They witnessed competition to Medtronic come and go, Animas being the most recent example, and frankly didn’t want the hassle of dealing with another company going to the insulin pump graveyard. Medtronic made it even tougher by offering payors not just better pricing, which they knew the competition could not match, but also now a performance guarantee.

Yet Medtronic now has a huge problem on their hands. To bring the 670G into the 20th century a hardware change is needed and as we have noted before this isn’t going to be cheap. Additionally, as we have also noted this will create a marketing nightmare for the company. Throw in the fact major enhancements are needed to bring their CGM system up to date and the dominos are staring to line up for the competition.

Still the last and most important domino of all has to fall before this is fair fight. If that payor domino falls and that’s a big if the insulin pump market would go from being Medtronic and everyone else to a market of many. Although not yet here Bigfoot is already making waves in the insulin pump pool with their shave club for men pricing model. Onduo could go nuclear and offer their system for free going 100% at risk.

Should payors begin to accept alternate pricing models and/or greater patient choice Medtronic will have a real fight in their hands. A fight they will lose. Now keep in mind payors will NOT pay more for systems but if systems reach price parity the best toy in the toy chest will prevail. For this will place the power in the hands of patients not in the hands of payors. Formulary position if equal for all pumps will become irrelevant and it will be the patient who determines who wins and who loses.

Here is where Medtronic has a huge problem as we keep stating they are the most hated insulin pump company on the planet. We may joke about them being called the evil empire but this really isn’t a joke at all. And quite frankly we aren’t sure there is much the company can do to change this. The narrative has been defined and it’s tough for the company to change this.

Could Medtronic become what Microsoft has become? Is it possible that this company which now has a monopoly could see that monopoly evaporate? Could Tandem go from the outhouse to the penthouse? The answer to all these questions is an unqualified yes IF that last domino falls and formulary position becomes irrelevant. Should that last domino fall it would set off a change reaction which will forever change the insulin pump market.