Bad Assumptions

As we get set to leave EASD and head home we’re coming back with some new information that isn’t very good news for our friends in Northridge. When JNJ made the decision to shut down Animas and then made a deal with Medtronic to takeover the patient everyone including us just assumed the empire would grab the lions share of the patients. Sure some would go to Tandem and others Insulet but the general consensus was Medtronic would pick up 70%+ of the Animas patient base.

Medtronic obviously felt this was as well as they publicly stated they expected their diabetes franchise to grow in the mid to high double digit range in the near future. Doing the simple back of the napkin math this seemed very doable given the size of the installed Animas user base. It looked even easier as not only did they have the 670G but based on where the Animas patient was in their warranty cycle there was a strong incentive for them to convert to a Medtronic system as FREE is better than paying anything above $0.

As it’s turns out everyone may have made some bad assumptions. Back when the deal was first announced Tandem was on death’s doorstep and there was serious doubt the company would make it. Well today the company is financially secure and has a way cool system of their own the Basal IQ. Insulet is also picking up patients too. However there is a third unanticipated threat that didn’t dawn on any of us, patients getting off their Animas pump and going back to multiple daily injection (MDI) therapy.

Based on several conversations here there is a growing belief many of these patients already using a CGM can achieve pump like outcomes going back to MDI. In effect these patients who are already well schooled on intensive management will develop their own version of a Tyler. Rather than convert to another pump and having to relearn another system better to head back to where many came from, MDI. This is all possible because of CGM.

In spite of what all the pump companies say insulin pump therapy is not chosen because it delivers the best outcomes, no insulin pump therapy is a lifestyle choice. The reality is for an educated patient it really doesn’t matter how the insulin is delivered the pump really isn’t anything that special it just does the insulin dosing for the patient instead of the patient injecting. Insulin pens are commonplace, easy to use and regardless of what many believe injections aren’t really that painful especially now with the newer thinner shorter lubricated pen needles.

Yes these patients are giving up some conveniences but they are gaining some as well. No the system since it is controlled by the patient will not automatically shut down if it detects a hypoglycemic event coming but with the G6 is that needed as it can warn a patient with enough time so the patient can take action. Additionally with a pen, disposable or durable, the patient doesn’t have to worry about filling the pump reservoir, no worries about buddies or bad infusion sights or bad infusion sets. Again the key isn’t how the insulin is delivered the key is delivering the correct amount of insulin at the correct time.

Keep in mind these patients are already well schooled in intensive insulin management, they understand all the concepts involved- time to action – duration of action – insulin to carb ratio’s etc. Put another way their experience has become their insulin dosing algorithm. We should not forget that converting back to MDI is also cheaper as there are no pump supplies to buy, no tubing, no infusion sets, no reservoirs.

This is just the first part of Medtronic’s problem as the company has also gone out on a limb stating that their stand-alone CGM system will become a billion dollar franchise. No they don’t say when but they have said it. Now with the CGM market growing this seems logical for as we have said all along there is room for multiple players here. However eventually Abbott will turn the Libre into a real CGM while Dexcom already has one. Medtronic can say all they want about the Guardian Connect but in reality the system doesn’t have prayer.

It gets even worse when one looks at all the CGM systems in the pipeline, while most will fall flat some will make it. Unless Medtronic majorly reconfigures the Guardian Connect i.e. eliminating calibrations and improving performance, they will fall even further behind not just Dexcom and Libre but the newbies who make it.

The reality here is Medtronic has just one advantage now and its not the 670G. Keep in mind the 670G like the Libre has no connectivity and eventually like the Libre will. Well for Medtronic this creates a nightmare as how do they convert the units in the field some 70,000 or so to the newer hardware. How do they justify charging an existing 670G for the hardware replacement or do they eat the cost? Either option creates a problem for the company and given their history no matter which option they chose it won’t go over well.

The lone advantage, the last bullet in the chamber is their scale and relationships with payors. Take that away and the company goes from having a flesh wound to a full blown cut in the jugular vein. Should Tandem for example go head to head with Medtronic, offer the same guarantee to payors and undercut Medtronic on price it becomes a whole new ballgame. Medtronic of course would match these prices cuts or maybe not, maybe just maybe they will reverse course and sell the franchise while it still has value.

As we consistently state this market is by no means a level playing field. It is when it comes to technology and performance but that’s not what counts. What counts is formulary position, making it easy for patients to get on the system. Also as we keep stating there is enough animosity towards Medtronic that should it become a true level playing field the goose that lays the golden eggs would all of a sudden become an albatross around Medtronic’s neck.

We wonder if Medtronic sees this or if they will make the same mistake JNJ made with Animas and ultimately with LifeScan, overstaying their welcome in a business that is well past it’s glory days.

Like everything else in diabetes insulin pumps have become a commodity and in a commodity business its all about money. Right now Tandem if they played their cards right could take on Medtronic but the reality is if its not Tandem it will be someone else.

The empire is rip for the taking the only question who has the force on their side.