Inching along

Inching along

This morning Abbott (NYSE: ABT) per a press release stated;

“Abbott (NYSE: ABT) today announced that the Ministry of Health Labour and Welfare (MHLW) in Japan has granted national reimbursement for the FreeStyle® Libre glucose monitoring system effective September 1, 2017. The revolutionary system will be widely available to the more than 1 million Japanese people ages six and above with diabetes, both Type 1 and Type 2, on insulin therapy. “

This announcement just reinforced our concern on why the FDA is taking so long to approve the Libre. What is it they see or perhaps don’t see that has given them cause for concern. Since we will be attending EASD in Lisbon this is a question we’ll be sure to ask our good friends at Abbott. Not that we expect any answers and not because they won’t be talking, more than likely they don’t know why the FDA is taking so long. Yes, they have more information than everyone else but when it comes to the FDA no one ever quite sure what they will or why they will do it.

But let’s assume that the FDA finds it in their hearts to approve the Libre just what will Abbott walking into here in the good old USA. A market that is dominated by Dexcom (NASDAQ: DXCM) and Medtronic (NYSE: MDT). Just how do they plan to compete? If the answer is accuracy they lose as no one has come close to Dexcom, yes everyone else is getting better but Dexcom is still the best.

If the answer is functionality they also lose.

If the answer is cost, which we suspect it will be they also lose. Just as an FYI we also expect Medtronic to be very aggressive on price as they move further into the stand alone CGM market, that is after they figure out how to make sensors on a massive scale.

The way we look at this is that while Abbott and Medtronic are inching along, Dexcom is taking large strides. The team at Dexcom knows a price war is coming and they are ready for that. They also know they must widen the gap between themselves and everyone before the Libre gets here as the Libre is a greater threat the Medtronic system. The one thing they cannot control, although they may by default, is the problems at Tandem (NASDAQ: TNDM) and Animas.

While shares of Tandem have been on a rollercoaster ride these past two weeks nothing has changed for the company. They are still running out of money and their lenders are closing in. Animas remains twisting in the wind while their owner Johnson and Johnson (NYSE: JNJ) figures out what color toilet paper belongs in the executive restrooms, we’d recommend blue just to be different.

Although Dexcom really doesn’t want to buy a pump company as we have noted before market dynamics just might change their thinking. Or as Vito Corleone once said; “I’m going to make him an offer he can’t refuse.” Only it will Tandem and Animas throwing themselves at Dexcom not the other way around. As we noted Dexcom has pump DNA and we have no doubt they could handle being in the market.

Our main concern would be whether such a move would distract them from their longer-term goals. Given their ultra-talented team this is not a major worry but even the best teams have off days.

Honestly, we aren’t that concerned about the cost. With Tandem Dexcom would be holding all the cards while JNJ just might say enough is enough and help Dexcom take Animas off their hands.

Right now, the people at Dexcom are staring at a white board playing out multiple scenarios. What happens if Tandem does implode? What if Animas is sold to private equity? How many sensor patients will we lose if Tandem declares bankruptcy? Do we really want to be in the insulin pump business? Is this really a good place to put our money? If we do make this move can we do it without adversely impacting our sensor business?

The fact is Dexcom does not need to be in the pump business. Yes, it will hurt in the short-term when Tandem implodes as we anticipate 80% or more of these patients will go to Medtronic. And it certainly isn’t helping matters much that JNJ cannot make a peanut butter and jelly sandwich let alone find a buyer for Animas. Yet we view these as short-term issues. The reality is the company will be just fine if the stand pat and do nothing.

Still this must be tempting and will only get more so. When it’s all said and done the deal could be just too good to pass up. As Momma Kliff used to say when she found a deal; “Oy it was such a bargain I couldn’t pass it up.”