Dog Days

Dog Days

The way things are going in the diabetes market the extended holiday weekend can’t come soon enough. Although it’s a rare moment when folks in the field are happy for extended period of time, the general sentiment from the rank and file is pretty grumpy these days.

Let’s start with perhaps the most unhappy field force in diabetes and to the surprise of many it’s not Insulet (NASDAQ:PODD), although they are a very close second, the most unhappy campers are the folks at Boehringer Ingelheim who must try and sell the dog of all diabetes drugs Tradjenta. Besides being a third to market, me-too drug competing against an established blockbuster; life has been made even more difficult as many insurers have yet to make a coverage decision on the drug.

Diabetic Investor just can’t wait for the next Lilly (NYSE:LLY) conference call and see how they will explain away just how badly Tradjenta is doing.  With Bydureon now just months away from FDA approval, it will be curious to see if the company begins to back away from Tradjenta. Such a move would not be unusual for Lilly as they given their previous dealings it’s obvious that the company could care less how their actions impact another company who is supposed to be their partner. While Diabetic Investor does not know the folks at Boehringer very well, we do however have a piece of advice based on our knowledge of Lilly – Watch your back Jack!

Another group of very unhappy campers are all the glucose monitoring reps, well known for constant complaining; these folks actually have valid reasons for being unhappy as pretty soon most of them will be out of a job. Even worse the prospects of reemerging at another company in the business are non-existent as everyone and we mean everyone is cutting back. Thankfully these reps can take a little solace from the fact that the executives who got these companies in so much trouble will likely be gone as well; the main difference being these executives will move to a different part of the company and retain their inflated salaries and fat bonuses. Only in the diabetes device world are the executives who screwed up the business rewarded with promotions.

The insulin pump world is not immune to the malaise and depending on which pump company there are plenty of reasons for this state of unhappiness. Insulet is facing the most pressing set of problems and the recent round of defections from the company is just the beginning. Over the past few months Insulet has lost a third of their sales managers and 10% of the field sales force. Besides pod quality issues those who have left have lost confidence in management to turn things around. The company counters that these defections are quite normal and actually a compliment that other company’s would want to pouch their talent.

Frankly Diabetic Investor thinks Insulet management is delusional if they actually believe it’s a good thing to lose talented people. Keep in mind this is a company that is missing internal sales estimates, is beginning to bleed cash and just spent $63 million to acquire a third rate DME. The reality is while they may have refilled the positions that were lost, this is not a like a light switch, you don’t just take a brand new person and drop them into a territory once covered by someone else and think that it will business as usual. In the real world it takes time for these new people to become acclimated and time is something Insulet just does not have on their side.

The difference between the unhappiness at Insulet and Medtronic (NYSE:MDT) is that Medtronic can survive while Insulet may not. Diabetic Investor would hate to see this happen as the OmniPod is a truly innovative product that does have a place in the market. The one thing Insulet has done very well is validate the market for wireless pumping. The real problem has never been the product, looked at honestly the real problem is the company never expected to be here as a stand-alone entity 10 years after getting started. Although a remote possibility today, many including Diabetic Investor, believed it was just a matter of time before Insulet was acquired.

Many potential suitors came in and looked around, and believe it or not at one time Medtronic actually wanted to buy the company, but nothing every materialized. While it would be an overstatement to say that management is the lone reason the company has not been sold, it’s fair to say that management is part of the problem. However, the real culprits here are the company’s Board of Directors. It’s baffling how this Board sat around and did not see what was going on in the marketplace. It’s even more baffling how they could approve the acquisition of Neighborhood, an acquisition that will end up being a waste of $63 million.

The harsh reality is that the company is now coming to a critical juncture as they have bet the ranch on the new smaller, cheaper to make pod. Any delay at the FDA could literally cost the company its future. Although not directly related to the company’s future it should be noted that Ypsomed, their international partner, had their CEO resign and it’s rumored that they will soon have an insulin pump of their very own. It’s known that Ypsomed had some major issues getting the reimbursement they wanted for the pod and now must start all over. Based on what Diabetic Investor is hearing, the company just might abandon the pod altogether which would once again leave Insulet without an international distributor.

This set of circumstances, combined with the very difficult market dynamics for insulin pumps in general could well determine the long term future at Insulet. The problems they have are not insurmountable and they do have solid platform to build upon. The real key becomes execution when the new pod becomes available, frankly they just can’t afford to screw up the launch or it could be Insulet that gets executed.