How to kill the golden goose

How to kill the golden goose

One just might think that a company that owns a particular market with over 70% market share, brand name recognition and a huge installed user base which generates a consistent highly profitable revenue stream would have to do nothing more than not screw up. But then again this is the wacky world of diabetes where it seems not only can anything happen but some companies seem bound and determined to screw up a very good thing. Roche did this in the glucose monitoring space and now it appears Medtronic (NYSE:MDT) is trying to do the same in the insulin pump market.

Back on September 19 the company received yet another warning letter from the FDA, a highly detailed warning letter which outlined a laundry list of issues and infractions. Among the issues outlined not having a viable system that enables correction and prevention of manufacturing problems. The FDA soundly criticized the company for not figuring out how to prevent future issues with their Paradigm line of pumps and for not providing evidence they have actually taken steps to correct previously identified manufacturing issues.

While all warning letters are detailed this recent letter goes above and the beyond the norm outlining in great detail numerous issues, issues which were outlined in previous warning letters, where the company has failed to fix the problem.

Ironically the warning letter comes just as the company is launching their new Paradigm 530G insulin pump which they claim, incorrectly, is the first semi-closed loop insulin delivery system. A system which had several issues when it was first launched overseas and took much longer than accepted to be approved here in the United States. A system which the company is banking to regain the upper hand for new pump starts, which are patients completely new to insulin pump therapy. As we have noted previously this is the one area where the company has been on the losing side as new pump patients have been opting for competing systems.

When we last wrote about this Diabetic Investor speculated that the Medtronic sales force which has been complaining long and loud about having nothing new to sell would embrace the 530G as it gave them the ammunition needed to fight for new sales. Well it looks like that advantage is now mute given this recent warning letter which as sure as the sun rises in the east and sets in the west will be used by the competition during their sales calls.

This warning letter should also send a strong message to all those who believe that a true artificial pancreas is right around the corner. For years Diabetic Investor has noted that while it would be great to have such a system getting from concept to an actual commercially viable system isn’t easy. While the proponents of the artificial pancreas always talk about how wonderful this system would be they fail to acknowledge the obvious; a true artificial pancreas is really nothing more than a collection of medical devices basically an insulin pump and a continuous glucose monitoring system. Medical devices which history tells us do fail and fail with great frequency. Medical devices which are manufactured by someone and as this latest warning letter clearly states not every company does what it’s supposed to do.

Now there are some who might look at this highly detailed warning as further evidence that the government is targeting Medtronic and that there is correlation between this letter and the OIG investigation. An investigation which may or may not actually exists but all evidence seems to indicate does exist. About all we can say at this point is Diabetic Investor would not discount any possibility as this is the wacky world of diabetes and stranger things have happened in the past.

Conspiracy theories aside Diabetic Investor sees a much bigger problem for the company as they cannot afford to alienate the one agency which can destroy their future. Their failure to address and correct previously identified issues is not only bad business it’s stupid. For anyone who believes that the FDA cannot destroy a business, think again as this exactly what they did to another insulin pump company Disetronic which ironically was owned by Roche. Not only did the FDA come down hard on the company with an import ban they took their sweet time removing the ban largely because Roche management kept bashing the FDA publicly. Back in the day Diabetic Investor noted that even if the company felt the agency was wrong it wasn’t exactly good business to bash the agency so publicly. As we have noted many times better to be thought a fool than to open your mouth and remove all doubt.

The simple fact is should Medtronic take the same arrogant approach as Roche did, something which it seems to be doing by ignoring previous FDA warning letters, the FDA like the Chicago Mafia will make an example of the company. Like the Chicago Mafia the agency has the fire power to make life very difficult for Medtronic.  The last thing Medtronic wants or needs is to be on the FDA’s whack list.

As Diabetic Investor has noted before Medtronic really has the easiest job in diabetes as all they have to do is not screw up. They really don’t have to be innovative, first to market with new products or overly creative their main job is to keep the goose that lays the golden eggs alive and healthy. Yet for reasons no one and we mean no one understands that company is doing their best to shot themselves where it hurts most. Let’s hope for all involved management takes this latest letter seriously and pray that the FDA doesn’t make an example of them.