Insulet LifeScan Join Forces

Insulet LifeScan Join Forces

This afternoon Insulet (NASDAQ:PODD) announced they have signed a deal with LifeScan, a unit of Johnson and Johnson (NYSE:JNJ) to provide glucose monitoring technology for the OmniPod Personal Diabetes Manager (PDM). According to a company issued press release;

“Under the terms of the worldwide agreement, LifeScan will provide its glucose monitoring technology to Insulet who will be responsible for the development, design and approval of the integrated device.  The initial term of the agreement will run into 2017 and is non-exclusive.  Insulet, however, maintains an exclusivity option to be declared, at its discretion, upon commercialization of the integrated PDM.  This option would make LifeScan the exclusive blood glucose monitoring technology integrated into the OmniPod PDM and provide additional compensation to Insulet.”

Diabetic Investor is not surprised by this move and actually anticipated that Insulet would change glucose monitors given their relationship with Abbott (NYSE:ABT) has been on shaky ground. Although it is not mentioned in the release Diabetic Investor anticipates that LifeScan monitor will be integrated into the new PDM that works with the new Eros pod which is awaiting FDA approval. We further believe that LifeScan will pick up the cost of the new PDM, helping Insulet reach profitability faster than originally anticipated.

Some may recall that Diabetic Investor was surprised during the company’s last earnings call that they noted that the new Eros pod would not deliver the anticipated margin increase due to the cost of replacing existing patients PDM. During the call the company noted it would take two to three months before the new pod would see higher margins.

Now before everyone begins dancing in the streets and jumping for joy it’s important to keep in mind a few points. Insulet isn’t exactly known for being able to get enhancements to their system approved by the FDA, the Eros pod is one example, the new Abbott FreeStyle strip another.

It should also be noted that this is not the first time LifeScan has partnered with an insulin pump company and if there last go around is an indication of how well these things work, Diabetic Investor isn’t all the optimistic. Frankly if they couldn’t get along with Medtronic (NYSE:MDT) who owns 70% of the insulin pump market, it remains to be seen how they will feel working with the number three player in the market, who just so happens is trying to steal customers from JNJ’s other diabetes device company, insulin pump maker Animas. One has to wonder if the folks at LifeScan who are supposed to be working more closely with the folks at Animas, are intentionally trying to make this relationship more difficult or if they just don’t care what their supposed partners at Animas think.

Still, even with this baggage, Diabetic Investor sees this as solid move by Insulet management. Who knows, JNJ was dumb enough to buy one insulin pump company after making a huge investment, perhaps they will double down and buy Insulet as well. Years ago Diabetic Investor felt this combination might be the only way to take on Medtronic. However today we are not as certain as the insulin pump market is getting more crowded by the day. Besides Tandem and CellNovo, word is that Roche, yes Roche is getting set to re-enter the insulin pump market in a big way.

Even with all this activity and all the new players there has been one constant in the insulin pump market; Medtronic owns the market and no one, so far, has figured out a way to steal away share and give them a run for their money.  The question today is really no different than it was 5 or even 10 years ago, can anyone knock Medtronic off its pedestal? Things are getting more interesting but we’re not sure that the results will be much different, we’ll find out soon enough.