Getting Closer?

Getting Closer?

Back in late October reports surfaced that
Roche was considering buying insulin pump start up Medingo™. Based on various
published reports and rumors Roche would pay $150 to $200 million for the
company. At the time Diabetic Investor believed that this move was a stretch even
for Roche considering how poorly their insulin pump unit was functioning and
how badly they have managed Disetronic after acquiring the company for over a
billion dollars.

New information has surfaced that Roche
wasn’t the only company who considered making a play for Medingo. Based on well
informed sources Johnson and Johnson (NYSE:JNJ), who owns both LifeScan and
Animas, took a look at Medingo but decided to pass on the “opportunity”. Some
may recall that JNJ spent over $500 for Animas back in late 2005 and only
recently has Animas reached a point where the investment is paying off for the
company. Given that the company has just announced another major restructuring which
included 8,500 job cuts, now wasn’t the time to acquire Medingo. JNJ is still
interested in entering the patch pump market but sees no rush to jump in as
Medtronic’s (NYSE:MDT) patch pump is well behind schedule and Insulet (NASDAQ:PODD)
isn’t going anywhere either.

Diabetic Investor had speculated that
acquiring Medingo didn’t make much sense considering the company has no paying
customers, no signed managed care contracts, is just now building their sales
and support teams and has a product that has yet to prove it itself in the
marketplace. Why anyone would spend $150 million or more to acquire Medingo was
beyond rational thought. But then again, who said that anything Roche has done
recently has been rational.

It now appears that Roche isn’t looking to
acquire Medingo so they can launch the Solo™ MicroPump in an attempt to become
a player in the insulin pump market. Rather they are looking at Medingo’s
patent portfolio. Granted Diabetic Investor is not an expert on patents but we
can’t imagine Medingo’s portfolio being worth anywhere near $150 million. Nor
can we figure out just what Roche would do with them even if they owned them.
The fact is things are so bad at Roche’s insulin pump unit this is one time
when the company shouldn’t walk away from a very bad decision, they should run
and run fast.

Should Roche pull the trigger on this deal
it could well go down as the all-time dumbest decision ever made in diabetes device
history. It would once and forever solidify Roche as the worst managed diabetes
device company on the planet. Diabetic Investor has questioned the decisions or
should we say the lack of decisions made by Insulet’s board of directors but this
move by Roche would make Insulet’s board look like geniuses and that’s no easy
task. If this deal actually takes place it will once again prove that the best
way to build a small fortune is to start with a big one.

This news also makes Diabetic Investor wonder
just how serious the discussions between Roche and Insulet became. Was Roche
just jerking Insulet around or was Insulet overly demanding? Given the wide
variety of explanations Insulet has given for this deal falling through it’s
difficult to tell. Although Diabetic Investor has attempted to contact Roche to
get their side of the story, they have yet to return our phone calls; imagine

The bottom line no matter what Roche does
or does not do; is that nothing much has really changed in the insulin pump
market. Although Medtronic continues to struggle with their patch pump they remain
the market leader. Although some would say they are doing their best to make it
a two horse race between themselves and Animas. For their part Animas continues
to gain share and knows that if need be they can always acquire Insulet to gain
entry into the patch pump market.

Seeing this Insulet just might be smarter
than Diabetic Investor imagined. Having dealt with Roche they were able to see
first-hand how screwed up the company is and didn’t want anything to do with
them no matter how much money was on the table. They also know that until
Medtronic solves the many problems with their patch pump they basically own the
patch pump market. Their also aware that the Solo really isn’t that great of a product
and while there are many OmniPod wannabes nothing will be on the market in the
near term. Simply put Insulet just might believe time is on their side and there
is no need to rush into a deal. This thought process would certainly explain the
strange decisions recently made by the company and the lack of action by their

Then again, maybe Insulet isn’t that smart
and their just plain lucky. As has been said many times, sometimes it better to
be lucky than good.

Whether it’s being smart or lucky, it’s
sure better than being plain old stupid.