Insulet Medtronic Settle

Insulet Medtronic Settle

Diabetic Investor has learned that Insulet (NASDAQ:PODD) and Medtronic (NYSE:MDT) have settled their lawsuit, terms of the settlement were not made public. Investors would be wise to pay very close attention to Insulet’s SEC filings and upcoming quarterly announcements as they will likely provide clues as to the terms of this settlement. As Diabetic Investor reported previously on this subject Medtronic seemed to be going for the jugular as they were subpoenaing current and former Insulet employees.  Given their reputation for being ruthless when it comes to protecting their intellectual property Diabetic Investor suspects Medtronic would not have agreed to any settlement if they didn’t believe this was an actual victory.

Insulet for their part was likely faced with a financial decision, continue to fight in court which will drain valuable resources or settle to get this off the docket. Keep in mind the company still faces a serious fight with Becton Dickenson (NYSE:BDX) over a different set of patents. As we have said before in the world of diabetes devices IP is as important as market share and fights in this arena are not for the faint of heart. This is a full contact sport which often results in serious damage to the loser just ask the folks at Smiths Medical who “settled” with Medtronic; a settlement which basically crippled Smiths and lead the company to abandon the insulin pump market.

The company besides facing legal challenges is also fighting a report published last week by JMP Securities a report where the firm downgraded shares of Insulet. The report states;

“We analyzed the FDA’s MAUDE database and were surprised to find a sharp rise (>100%) in reports since the beginning of the year, coinciding roughly with when the company started to increase its shipments of the OmniPod 2. While the rise is not altogether surprising given the larger install base, we believe that the sheer number of reports, coupled with increasing amounts of negative online customer feedback about the lack of customer service, higher than expected failure rates, and device malfunctions among patients may become problematic. At best, the company may be doing a less than-stellar job of training its customers and patients. At worst, the company may be faced with quality control issues (maybe because of the surge in demand) that may the attract FDA’s attention or require retooling the manufacturing process. While these are nascent issues, neither presents a compelling reason to build positions at these levels. Hence, we recommend investors move to the sidelines until these issues abate.”

To Diabetic Investor JMP is over-emphasizing the increase in adverse event reports and doesn’t understand the vocal nature of insulin pump patients. Diabetic Investor took a walk through the MAUDE database and quite honestly didn’t see anything all the unusual. Sure the numbers of reports have gone up but that makes perfect sense as the company is selling more units. More importantly Diabetic Investor actually read several of the reports and again nothing all that unusual for a new system. It seems the folk at JMP have something in common with the FDA, they believe that there is no such thing as device malfunctions.

As for the vocal nature of insulin pump patients and the negative online comments this is par for the course and again nothing all that unusual. The fact is insulin pump patients are the most vocal and had JMP looked at message boards for Medtronic or Animas they would have similar negative online comments. While these social media sites and blogs serve a valuable function they don’t provide a truly representative sample of the insulin pump patient population. True it doesn’t help matters any that Insulet has never really had solid customer service but this too unfortunately has become standard operating procedure in the insulin pump market.

While we understand the concerns raised by JMP we fell their report shows their inexperience with the insulin pump market and insulin pump patients. We don’t disagree that there are some issues with the new pod; we just don’t see them as serious as JMP does. Nor do disagree that Insulet’s customer service basically sucks and this poor performance is the basis for many of the negative online comments.  However the OmniPod is a medical device, basically a machine and devices fail all the time that is just the nature of the beast.

It really should surprise no one who’s followed Insulet that there are some issues with the new pod. It took forever to get the new pod approved by the FDA and this wasn’t just because the FDA was being a pain in the rear. Once approved it also took forever to get the new system into the hands of existing OmniPod patients. Anyone who’s been around the insulin pump world would understand that things rarely work as projected and sometimes companies launch products before they are actually ready for prime time.  There is no doubt the new OmniPod is having its share of issues we just don’t believe they are anything beyond the normal issues any new system would have.