Another step forward

Another step forward

Last week Medtronic (NYSE:MDT) announced they had acquired Dutch diabetes clinic and research center, Diabeter. According to a post on today;

“Diabeter is one of the biggest independent diabetes centers in Europe, specializing in the care of children and young adults with type 1 diabetes. Currently with a staff of 36 in four locations, it manages more than 1,500 patients. The facility employs specially developed technologies such as Diabeter Dashboard, an electronic system which constitutes one of the main points of interest for Medtronic in the acquisition. Diabeter Dashboard connects diabetes patients and their doctors online, enabling self-management of the disease with available help from the clinic’s care team at all times.”

Medtronic also issued the following statement regarding this acquisition; “Internal Diabeter data show that their patients have achieved significant reductions in HbA1c levels, a key measurement used to assess blood glucose control. Near normal blood glucose control has been shown to reduce long-term complications of diabetes and can reduce health care costs over the long term.”

Separately the company also invested $2 million in DreaMed Diabetes, according to a company issued press release; “DreaMed Diabetes, developer of diabetes treatment and management solutions, announced today that it had signed an exclusive worldwide development and license agreement with Medtronic, the world’s premier medical technology and services company, for the development and marketing of products incorporating DreaMed’s MD-Logic Artificial Pancreas algorithm in Medtronic’s insulin pumps.”

Diabetic Investor sees both moves as significant as they signal where Medtronic is going. The DreaMed investment shows the company has not given up their quest to develop a true closed loop insulin delivery system. While the Diabeter acquisition shows the company understands that in the future it will be outcomes not hardware that rules.

As we’ve been stating almost daily the smarter companies in this wacky world are beginning to transform themselves for this new world order, the day when reimbursement is tied to outcomes. The smarter companies, especially those on the device side, are realizing what Diabetic Investor has been stating for years, this is no longer about way cool hardware, this market is about how this hardware is used, the outcomes this hardware facilitates.

Medtronic may be the leader in the insulin pump market but they also know that all insulin pumps do basically the same thing, the same way. That when properly used there really isn’t much difference between pumps. They also see companies like Tandem (NASDAQ:TNDM), Animas, still a unit of Johnson and Johnson (NYSE:JNJ) and Insulet (NASDAQ:PODD) partnering with Dexcom (NASDAQ:DXCM) which will push the market further towards becoming a commodity market. The reality is every insulin pump company is working on a closed loop insulin delivery system.

Looking towards the future the deciding factor of which system a patient uses will likely be decided not by the hardware but the support systems that come with the hardware. Insulin pump therapy as numerous studies have shown is very effective however with the introduction of newer and better insulin’s patients following multiple daily injection (MDI) therapy achieve similar outcomes. Before these new insulin’s came to market insulin pump therapy was clearly the best option for achieving better outcomes, however today that is no longer true. The choice between insulin pump therapy and MDI is a complex one involving many factors such as cost, level of training required, etc.

This is why Medtronic is bulking up on the system side. While they may not acknowledge it publicly they also know that insulin pump therapy is the most demanding of all therapy options and not just for the patient. Many physicians won’t recommend pump therapy for this very reason as insulin pump patients require the highest level of training and support. This is also why 80% of pump sales come from a handful of endocrinologists, as they not only understand insulin pump therapy but also the extra level of support pump patients require.

The less burdensome Medtronic can make this process the more systems they will sell. Just as the reimbursement for their system will be tied to outcomes so too will the physicians. Physicians aren’t immune to the fact that this is a business and like everyone else once they have skin in the game they will likely recommend systems that help them make more money.

Here is where Medtronic’s massive scale is a major advantage as they have the resources to develop and distribute support systems. Just as Lilly (NYSE:LLY) is playing offense in the diabetes drug market, forcing their competition to make some very tough decisions. So too is Medtronic doing the same in the insulin pump market as they know that Insulet and Tandem lack the scale and resources, while JNJ at least for now seems unwilling to allocate additional resources. Basically they are forcing the competition to either spend more to develop support systems or risk being viewed as mere providers of hardware.

Each day we are moving further away from the old days when hardware mattered to the day when systems matter. Systems which will help the patient more effectively use the hardware they need to manage their diabetes. Systems which will take all this data, send it to the cloud, share it with the patients diabetes support team, who in turn will communicate back to the patient their thoughts and/or advice which in turn when implemented by the patient will lead to better outcomes.

At least that’s the plan the question is who can make it all work. Yet as we’re seeing with greater frequency companies in this wacky world are beginning to get it and that’s not a bad thing, a welcome relief actually.