A sign of things to come

A sign of things to come

This morning Medtronic (NYSE:MDT) announced that Hooman Hakami would be replacing Katie Szyman as executive vice president and group president of Medtronic Diabetes. According to a company issued press release; “Hakami previously served as president and CEO of GE Healthcare’s Detection and Guidance Solutions business.”  It’s worth noting that current Medtronic CEO Omar Ishrak is also a GE alum. Based on what Diabetic Investor has been able to learn so far Ms. Szyman will remain with the company, at least for now.

As Diabetic Investor has stated on several occasions when it comes to Medtronic and diabetes rule one is don’t screw up the goose that lays the golden eggs. Rule two is reread rule one. Now Diabetic Investor won’t say that previous leadership violated rule one but it’s not an understatement to say the insulin pump business has changed dramatically and that Medtronic has not kept pace with how the market is changing. The company’s fascination with being the first to market a true closed loop insulin delivery system, i.e. artificial pancreas, a long term quest has done nothing to help the company address short term issues.

The harsh reality when it comes to new pump starts, patients who are new to insulin pump therapy, Medtronic is no longer the pump of choice – newcomer Tandem (NASDAQ:TNDM) and Insulet (NASDAQ:PODD) are winning these patients. Worse for Medtronic their poor customer service and lack of new innovative products is beginning to hurt where it hurts most, keeping existing customers. Medtronic practically owns the insulin pump market with nearly a 70% share. Better still is they have the largest installed user base, a user base which continually orders pump supplies, supplies which average approximately $2,500 per year per patient – cha ching. This is the goose that lays the golden eggs for Medtronic diabetes.

It was pretty much a foregone conclusion that change was in store as it was becoming increasingly obvious the company was losing share, that they were increasingly seeing existing patients opt for a competing system when it came to replace and/or upgrade their pump. It also didn’t help any that the company’s continuous monitoring system was inferior to the competition and Medtronic patients were using a Medtronic pump and Dexcom (NASDAQ:DXCM) CGM.

The question for the new guy is how quickly he can get up to speed on the changing nature of the insulin pump market and can he refocus the company. Will he continue this grail like quest to develop an artificial pancreas or will he focus on upgrading the existing product line with products patients actually want and can afford? Will he improve customer service, once the envy of the industry and now a source of nothing but problems. Will he improve relations with physicians, relations which were majorly damaged by the field sales force and their ultra-aggressive, many times over the top sales tactics.

This is a big job and not an easy one. Thankfully the company still maintains their huge lead in the market and is the most well-known brand. However damage has been inflicted and the competition is slowly chipping away gaining share. Competitive bidding is on the way while pricing pressure from private payors continues to intensify.

The way Diabetic Investor sees it he better move quickly as like humpty dumpty if he fails all the kings’ horses and all the kings’ men won’t be able to put him back together again.