This morning Lilly reported full year results while BD reported yesterday. When it comes to diabetes both companies are performing very well. Which makes one wonder why both companies want to venture outside their core competency and enter the insulin pump market. BD’s move into this area is more surprising than Lilly’s as BD owns the needle and syringe area and each time they have strayed from this area it has not ended well.
As we have noted before we can somewhat understand Lilly’s move into the pump space as if done well it could help sell more insulin.
Yet the problem is when it comes medical devices insulin pumps in particular history tells us drugs and devices don’t mix. We all remember Sanofi’s ill-fated move into BGM with the way cool now way dead iBGStar. The same happened when BD also ventured into BGM. Novo has had their issues as they were investors in the now bankrupt Asante.
So, it’s logical to ask why anyone would want to enter a market that is growing in the low single digits, has one player that owns almost 70% of the market and has two other well established players which own the other 30%. Is this market poised to all of sudden experience tremendous growth? Do these newbies have something the established do not? Are payors looking to increase reimbursement for pumps?
NO – NO – NO
So why then are they spending millions to enter an over-crowded barley growing market?
Would it not make better sense to enter a market that actually is growing and has a more positive outlook? A market that carries much lower costs and does not carry the heavy and very costly burden of customer support. Have they not done their due diligence, or did they do it and decide to ignore it? Have they not walked through the insulin pump graveyard, paid their respects and asked themselves why these companies failed?
Is not the definition of insanity performing the exact same behavior over and over again but expecting different results?
What’s worse here is these wannabes are blind to threats to their core businesses. This isn’t so much the case with BD but is the case with Lilly. As we stated Lilly sees pumps as tool to sell more insulin. But think of what would happen if someone came along and successfully launched a Tyler using a biosimilar short-acting insulin. Also think of what would happen if Medtronic pulls the trigger and does sell their diabetes franchise to a private equity group.
Unshackled from Medtronic this franchise which already owns a commanding presence in the space could get even stronger. Yes, the unit has problems, problems which can be fixed once unshackled from Medtronic who is aware of the problems yet is so quarterly focused will not fix them until they are forced to.
In the hands of private equity this franchise could undergo an immediate and very positive transformation. As everyone knows one of the biggest issues facing the company is the unreliability of their sensor. Well once outside of Medtronic there is nothing to prevent the new owners from going to Dexcom and having a Medtronic pump work with a Dexcom sensor. The new owners could also save millions by revamping rep compensation.
Why Medtronic has not already done this is astonishing. Yes, back in the old day’s reps earned their hefty commission checks. However today these reps are nothing more than glorified order takers. Medtronic owns the formulary space combined with brand name recognition. When it comes to choosing a pump a Medtronic system is always in the mix. It’s rare occurrence when the choice comes down to Tandem and Insulet with Medtronic excluded.
Take away the sensor problem, throw Dexcom in Medtronic would be back in the game when it comes to winning patients new to pump therapy.
Come to think of it given that Medtronic is considering selling the unit why hasn’t a Lilly approached them? Likely the same reason they didn’t buy Tandem when the company was on death’s doorstep. Or as Momma Kliff used to say why pay a few million to buy an established player, spend a few million more to fix the problems and build from there when you can spend a few billion. Actually, Mom didn’t say that as she would have thought that’s nuts which it is but it’s also true.
It’s rare in our wacky world when a company strays from their core competency and finds success. We don’t see this being any different with all the insulin pump wannabes.