Can Tandem make it?

Can Tandem make it?

With the recent spat between Medtronic (NYSE:MDT) and Insulet (NASDAQ:PODD) grabbing the headlines in the insulin pump arena, another story is developing which is equally relevant. Given that Tandem Diabetes the makers of the t:slim insulin pump is looking for more money, Diabetic Investor has received several inquiries all asking basically the same question; “Can  Tandem make it?”  These folks know that we don’t see the insulin pump market as fertile ground for growth, they see as we do that even with all their mistakes Medtronic still owns 70% of the market but also sense as we do that Medtronic is ripe for the taking. The question then becomes can Tandem do something neither Animas nor Insulet has been able to do and actually take enough share away from Medtronic to make them sit up and take notice?

Diabetic Investor does believe the door is open to take share away from Medtronic who remains convinced that every pump patient wants to be on a closed loop system, something we don’t believe. The fact that the company has failed to deliver on their promise to launch a new pump platform and continues to spend valuable resources on the pipe dream known as a closed loop system shows how deep this belief runs within the company. Now before everyone starts believing that Diabetic Investor does not believe any good from the quest think again. However, anyone who believes that a true closed loop system is commercially viable we have a bridge in Brooklyn we’d like to sell.

In the real world the fact is when it comes to insulin pumps the Medtronic name while still valuable is losing its luster so much so that the company is bringing back the MiniMed name. Talk to any endocrinologist who prescribes pumps and most will tell you that the Paradigm line is old and out dated. That the company’s sales reps are no longer welcome in their offices and that their continuous monitoring platform is subpar when compared to the Dexcom (NASDAQ) system.  This is the main reason why when it comes to new pump placements, patients who have never pumped before, Medtronic is losing 7 of 10 new pump starts.

That being said Medtronic will not see any company as a serious threat until they begin to see some serious erosion in their installed user base. This huge installed user base is the gift that keeps on giving as over 75% of these users have their pump supplies shipped to them automatically. Besides making life easier for the patient automatic reorder is a financial windfall for the company as sales of pump supplies are not just predictable but very profitable. Truth is the goose that lays the golden eggs at Medtronic is not pump sales but the sale of pump supplies.

If the company does have an Achilles heel it’s their constant attempts at trying to outsmart themselves. Ever since Medtronic bought MiniMed they have been tinkering with a formula that didn’t need to be tinkered with in the first place. This is not unlike when Coke changed their formula, introduced New Coke and then found out there was nothing wrong with the old version.  As we have noted many times it means little to bring back the MiniMed name if the company does not also bring back the MiniMed way of doing business which meant putting the patient first in everything they did.

So to answer the original question; Can Tandem make it? The answer is a clear maybe. While Diabetic Investor believes the t:slim is a better system, we do not believe it’s a better insulin pump. The fact is all insulin pumps do basically the same thing, the same way. The difference in systems comes down to ease of use. There is no question that the t:slim user interface is far more patient friendly than any insulin pump currently available in the US. The Apple like design is sure to attract attention and as we have noted before the t:slim is way cool. But as cool as the t:slim is coolness does not help get the system covered by payors, does not get Tandem sales reps into front of physicians and won’t prevent Medtronic from suing should they see the t:slim gaining even a toehold in the market.

There is also a huge misconception amongst Medtronic competitors that patients actually want to change systems. Although it’s difficult to put an exact number on it, the fact remains that there thousands of patients who are perfectly happy using pumps that are older than their children.  This fact is difficult to explain to someone who has never used an insulin pump but talk with pump patients as we do and it’s obvious these pumpers know their system is not state of the art but they really don’t care it works for them. The fact is these patients don’t want to learn a new system no matter how it easy it is.

Tandem also faces another problem and there’s nothing they can do about it, as they don’t bring with them years of insulin pump experience. While their team is experienced, patients could care less about this as they have seen pump companies come and go. The Cozmo system is just the most recent example of how a company can have a great system only to beaten into submission by the Medtronic legal hammer. Thousands of Cozmo patients through no choice of their own had to switch systems. As we noted before insulin pump patients are a sophisticated and educated group of patients who are diligent when it comes to doing their homework. While they might be impressed with the design of the t:slim many will take a wait and see attitude before taking a closer look and ultimately the final plunge.

The last thing any pump patient wants is to be forced into learning a new system should their existing system fail in the marketplace. Animas, which is a unit of Johnson and Johnson (NYSE:JNJ) does not have this issue and while Insulet is no behemoth it has survived the test of time. Which brings up another very big hurdle as Tandem does not have to contend with just Medtronic but Animas and Insulet too.  That they will have to play in a market that isn’t large enough or growing fast enough to support all the existing players let alone the many players who are trying to enter this market.

To be honest about it Diabetic Investor would like nothing better than for someone, anyone to come along and kick Medtronic’s butt. Not that we have anything against the company, but a serious threat could force them to reevaluate their current strategy and get them back to what made MiniMed great in the first place. While some may not think so, this is America and serious competition has a way of making every company in a category better. There is no question the t:slim is an attractive product that should be taken seriously, however as we have seen before it takes more than good looks to make it in the insulin pump market.

As the old saying goes – Pretty much anyone can build an insulin pump, the real talent is running an insulin pump company.  The fact is many have tired and most have failed.