Chipping Away

With both Tandem and Insulet reporting earnings yesterday two messages are beginning to emerge when it comes to the insulin pump market. First, both Tandem and Insulet are gaining momentum each doing well with their existing products while developing exciting new products. Next if the folks in Northridge aren’t worried, they should be. Medtronic may be king of the hill for the moment but uneasy is the king who wears the crown.

Both Tandem and Insulet are inching ever closer to having their own hybrid closed loop systems, systems that work with the Dexcom sensor. We were thrilled to hear that both companies are also moving closer to having a patient’s smartphone control their pump. Should Insulet be able to develop this capability it would be a huge cost saving as it would eliminate the need for the PDM. While we’re not sure the FDA will allow that from the start, we can see it happening.

Taking a 10,000-foot overview of the entire insulin pump market here’s what we see, and it points to why Medtronic has a big problem on their hands and not just what we have written about recently. As we have noted when the 670G works as intended patients love it, the problem is the system doesn’t work as intended often enough. Given the vocal nature of insulin pump patients and the many patient complaints to their physicians the issues with 670G are well known.

Add in the fact that there is a very real dislike for Medtronic by both patients and physicians and its easy to understand why former Animas patients are converting to Tandem and Insulet. The demise of Animas was supposed to be a layup for Medtronic. Yet it’s not turning out that way. While we do believe Medtronic will get their share of these patients it will not be what they anticipated. With Tandem now on solid financial footing and Insulet becoming more aggressive Animas patients have more choices. Both Tandem and Insulet noted greater Animas conversions which are helping drive growth.

Cracks in the damn are emerging and could turn into a full-blown flood should the FDA come down hard on Medtronic. Since the FDA investigation into Medtronic has just begun it’s too early to speculate as to what if any actions they may take. However, should the FDA force Medtronic’s hand these small cracks in the damn will rupture. A warning letter or worse a product recall would be devasting for Medtronic.

As we have noted on numerous occasions Medtronic owns the most valuable piece of real estate when it comes to insulin pumps, formulary position. Should payors begin opening up formulary all bets are off. Its’ not an understatement to say that should this happen the Medtronic monopoly will be in serious danger. That the goose that lays all those golden eggs will be in serious danger of becoming a wounded duck.

The reality here is that Tandem and Insulet are chipping away at Medtronic. It’s also true that Medtronic is their own worst enemy. Again, as we have pointed out previously there was no need to rush the 670G onto the market. The fact is and yes these are facts the system wasn’t ready for prime time. Not to be redundant but the sensor which drives this system is inconsistent at best and given its design a fix is not simple. Perhaps that’s why at one-point Medtronic looked seriously at acquiring Dexcom. They know they have a problem and buying Dexcom was an instant fix that would have delivered a knockout blow to the competition.

Just to be clear here we have seen this movie before. We have seen the empire wounded largely by their own hand. Each time in the past when this happened there was a management change and the problems were fixed. However, it seems different this time around and a management change will not fix the many issues the company is now facing. Tandem and Insulet are stronger than ever, they have better products than Medtronic, better reputations and momentum on their side.

Medtronic will not go quietly into the night, but money alone will not save them this time around. Money will not buy their way out of the FDA investigation. The dominoes are starting to line up against the empire and it could be the FDA that sets of a chain reaction which forever alters the balance of power in the insulin pump market.