Insulet announces exclusive deal with Abbott

Insulet announces exclusive deal with Abbott

On Monday Insulet (NASDAQ:PODD) and Abbott (NYSE:ABT) Diabetes Care entered into an agreement making Abbott’s FreeStyle blood glucose monitor the exclusive glucose monitor for the OmniPod Insulin Management System.

According to the 8-K Insulet filed with the SEC today; “ Pursuant to the Amendment, the term of the Original Agreement was extended until February 2013 and the license granted therein was extended to cover Israel as well as the United States. The Company also agreed that Abbott’s Freestyle blood glucose meter will be the exclusive meter available in any OmniPod System, or other insulin infusion system that includes a blood glucose meter, developed by the Company and sold in the United States or Israel. This exclusivity arrangement will not restrict the Company’s ability to develop, market or sell any product incorporating any continuous blood glucose monitoring system. In addition, Abbott paid the Company a one-time exclusivity fee upon execution of the Amendment and, beginning in July 2008, will begin making payments to the Company based on sales of OmniPod Personal Diabetes Managers that include Abbott’s Freestyle blood glucose meter. The ongoing payments from Abbott are intended to reimburse the Company for its customer care activities associated with the meters included in the OmniPod Personal Diabetes Managers. In the event of the sale of the Company, the exclusivity and on-going payment provisions of the Amendment may be terminated by the Company and the acquiring company at their option. As set forth in the Original Agreement either party may terminate the Original Agreement if the other party is acquired by a competitor of the non-acquiring party.”

As the highlighted sections point out Insulet did not give up their ability to work with Dexcom (NASDAQ:DXCM) on integrating Dexcom’s continuous glucose monitoring system into the OmniPod. The company received an up-front, non-refundable payment from Abbott (the amount was not disclosed) plus continuing payments based on OmniPod sales beginning in July of this year. Perhaps best of all the agreement does not prevent Insulet from beginning acquired by someone other than Abbott.

This agreement speaks volumes about the current state of the blood glucose monitoring market and Abbott’s continuing issues in that market. As everyone knows Abbott has fallen to fourth place in the BGM market domestically and is facing an uphill battle to regain lost share. They also realize that with Johnson and Johnson (NYSE:JNJ) and Bayer having a similar agreement with Medtronic (NYSE:MDT) this battle to regain lost share just got tougher. Finally looking towards the future the company understands that insulin pump patients account for nearly 20% of all test strips sold in the US.

It won’t be long before LifeScan begins sending free monitors to every patient on a MiniMed insulin pump in the US while Bayer does the same thing with MiniMed patients outside the US. According to most industry insiders the LifeScan deal with Medtronic will results in an additional 600 million test strips sales per year for LifeScan. Additionally LifeScan will soon have a monitor that communicates with their own line of Animas insulin pumps. Animas is currently number two behind MiniMed and combined the two companies hold nearly 90% of the insulin pump market.

Although the Insulet has slightly less than 5000 patients using the OmniPod, the company is expanding rapidly and will soon have nationwide distribution. As Diabetic Investor has pointed out previously we see the insulin pump market coming down to a battle between market leader MiniMed and Insulet. MiniMed has size on their side while the OmniPod has innovative technology and a unique pricing structure on their side. Already we are seeing Insulet winning many battles in markets where the two go head to head. The simple truth is patients prefer the OmniPod’s wireless design and automatic cannula insertion over being tethered to MiniMed’s conventional pump.

Looking further down the road these exclusive agreements with insulin pump companies makes even more sense. Although non-insulin using patients do not test as frequently as insulin pump patients or patients on multiple daily injection (MDI) therapy, they out number insulin using patients by a wide margin. According to Medtronic there are 5.3 million patients on some form of insulin therapy, while there are over 16 million patients controlling their diabetes with oral medications or diet and exercise. While the 16 million non-insulin using patients may not test as frequently as insulin users these patients account for nearly 75% to 80% of all test strips sold.

Recently a debate has developed over the value of glucose monitoring for non-insulin using patients. Several studies have found that increased glucose monitoring for non-insulin patients did not result in better overall outcomes as measured by HbA1c levels. With the epidemic growth rate in diabetes and the increasing costs associated with the disease some believe that insurers will use these studies to limit reimbursement for non-insulin using patients. Already we have seen insurers increase co-payments for testing supplies and limit the number of strips patients can purchase. Getting these patients to test is tough enough as it is but limiting or cutting off reimbursement would be a devastating blow to the market. The reality of the situation is non-insulin patients will not pay for testing supplies out of pocket.

The increasing popularity of GLP-1’s will also hurt the BGM market. Although Byetta from Amylin (NASDAQ:AMLN) is currently the only GLP-1 approved by the FDA, more are coming. Soon Novo Nordisk (NYSE:NVO) will submit their once-daily GLP-1 Liraglutide to the FDA, later this year or early next year Amylin will submit the once-a-week version of Byetta and both Roche and GlaxoSmithKline (NYSE:GSK) have GLP-1’s in mid to late stage trials. Besides providing outstanding control some of the GLP-1’s, most notably Byetta, have also demonstrated the ability to promote weight loss. Besides these obvious benefits GLP-1’s have some hidden benefits; simple dosing for the patient and no need to check glucose levels.

This is one reason physicians are so excited about the long-acting once-a-week version of Byetta, not only is the drug highly effective, they know patients will be compliant with their therapy. Unlike patients on insulin, patients on any GLP-1 will not need to regularly monitor their glucose levels, these drugs are not dose dependent. It will be much easier for the physician who can tell a patient to simply inject once a week and come back for an A1c test in three months. To Diabetic Investor the increased usage of GLP-1’s in the diabetes population is the single biggest threat to the BGM market.

The fact of the matter is the BGM market has already become a battle over getting insulin using patients. These patients must test on a regular basis. They need this information to insure they are properly dosing their insulin. It is also been mentioned several times on the pages of Diabetic Investor that insulin pump patients test more frequently than any other patient, on average 7 times each day. This is the reason LifeScan hooked up with Medtronic and now Abbott has an exclusive with Insulet. The fact of the matter is without a connection to an insulin pump company it is difficult to envision a scenario where a BGM company can grow share.

Ultimately these market dynamics bode well for Insulet and this agreement with Abbott is just the start. With competition intensifying in the BGM market it may only be a matter of time before either Bayer or Roche makes a play for the company. While Bayer does have an agreement with Medtronic outside the US, nearly 85% of all insulin pump patients are located in the US. Although Roche does have a pump of their own, sales have been lackluster and are unlikely to accelerate. The fact is the Accu-Chek Spirit insulin pump offers no real competitive advantage over the current crop of conventional pumps. And let’s not forget about Abbott, who ultimately may have no choice but to acquire Insulet. All in all Insulet is seating in the catbird’s seat as the only independent insulin pump company worth owning. >From Diabetic Investor’s perspective it’s just a matter of time before someone comes in and buys Insulet.

David Kliff
Diabetic Investor
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224-715-3761 mobile