It’s good to be the king

For all the reported issues facing Medtronic (NYSE: MDT) the company when it comes to diabetes anyway these issues aren’t hurting results. Per the results released this morning; “Diabetes Group worldwide fourth quarter revenue of $645 million increased 26.0 percent, or 21.3 percent on a constant currency basis.” In a surprise move the company noted they now have over 70,000 patients on the 670G, typically the company is silent when it comes to releasing patient count so this move is notable.

Sadly, the company continues to insist they can compete in the stand-alone CGM market. We chalk this up to the fact that the train has left the station and its too late to call it back so might as well see where it goes. No matter what the company says this product doesn’t stand a chance and we anticipate it will die a quiet death and something new will replace it.

The results also indicate that while Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD) are picking up more Animas patients than anticipated as we suspected the lions share are excuse the expression sticking with Medtronic. The company knows these conversions are critical as they almost guarantee the sales projections they have been so public about. When this is all said and done we believe our original projection that 80% plus of the Animas installed base will convert to Medtronic will come true.

Now before everyone does the happy dance a few points to keep in mind;

1. The 70K patients on the 670G are not NEW patients they were already on a Medtronic system and were converted to the 670G.

2. We do not anticipate the presence of the 670G or any of the coming closed loop systems expanding the insulin pump market in a significant way.

3. Based on current systems and what’s in everyone’s pipeline Medtronic when it comes to systems will quickly fall behind from a technology perspective, however given their scale we don’t anticipate this to hurt results.

4. The company has a major decision to make when it comes to updating the 670G as this update will require a hardware replacement which can be a very expensive proposition and tricky to navigate from a PR perspective as well.

5. The Guardian Connect stand-alone CGM was a huge waste to money and is dead on arrival no matter what the company says. They may be able to give it away but that’s about it.

As we have noted on many occasions Medtronic really doesn’t have to grow that significantly to make a ton of money. With Medtronic the goal is simple do everything they can to protect the goose that lays the golden eggs. With 80% plus market share the company is perfectly comfortable letting their competitors compete over the remaining 20%. Using their formulary advantage, they also know they will by default get new patients.

This does not mean the company is not cognizant of what’s going on around them or the issues they face. Hence the most recent organizational and personal changes. One thing about this new team is they aren’t afraid to make changes which is a refreshing departure from past management teams.

All in all, Medtronic knows they are king of the castle and its up to the other guys to dethrone them. The new management team does not appear to be clueless, the Guardian Connect being the notable exception. Frankly they have easiest job in diabetes – managing what basically is a monopoly. As long as that goose keeps laying those golden eggs they have a job, if it looks as though that goose might get harmed watch out and get that resume updated.