It’s not where they’ve been

It’s not where they’ve been

This morning Medtronic (NYSE: MDT) reported fiscal fourth quarter results and the diabetes franchise continues to execute on their new strategy. While the company noted that the domestic market remains competitive, internationally they continue to show some nice growth. Yet this really isn’t a story of where this unit has been rather where it is going. Two moves during the quarter provide greater clarity to what the future will look like.

The first is much discussed deal with UnitedHealthCare. A move which the company is trying to replicate with other payors. As we have noted previously being the market leader by a large margin does have its advantages and quite frankly we’re surprised it took Medtronic this long to flex their muscles. Even if other payors don’t follow United’s lead this new found aggressive approach has placed everyone else in the insulin pump space on the defensive.

While we believe Animas, the insulin pump franchise which is part of Johnson and Johnson (NYSE: JNJ), has the capital to survive a price war, the same cannot be said for either Tandem (NASDAQ: TNDM) and Insulet (NASDAQ: PODD). It would not surprise Diabetic Investor given Tandem’s precarious financial situation if JNJ does not step in at some point. Such a move would add valuable patients, provide a wealth of intellectual property, a decent pipeline of new yet unfinished products but most importantly of all it would prevent these patients going to Medtronic.

The second piece of news was the company’s deal with Qualcomm, a move aimed squarely at their major competitor in continuous monitoring Dexcom (NASDAQ: DXCM). Like everyone else they see conventional single point glucose monitoring becoming obsolete. They also see that Dexcom is partnered with Google and this partnership has set its sights on the huge Type 2 market. The fact is everyone is beginning to believe what Diabetic Investor has been saying for some time, CGM is not just for insulin using patients but all patients regardless of their therapy regimen.

Going to back to the United deal for just a second, this move wasn’t just designed to put added pressure on their insulin pump competitors but also to blunt or at least slow Dexcom growth in CGM.

The company also announced they would be submitting the MiniMed 670G with Enlite sensor to the FDA before the end of June. Although not a true closed loop system this would be a major step in that direction. Even if approved Diabetic Investor’s opinion of a true artificial pancreas is unchanged, yes it will be a technological marvel and yes there will be a subset of patients who will benefit immensely from such a system. However, commercially we’re remain skeptical this product will be a major revenue generator.

The reality is Medtronic has assembled the pieces it needs to be a major player in the diabetes device market. And no we don’t think their done by a long shot as the company still needs a “smart” insulin pen, a “dumb” patch pump plus a “smart” patch pump wouldn’t be a bad idea either. Then like everyone else they must tie it all together with patient friend apps which transform all this data into patient understandable patient actionable information.

As we noted before like the diabetes drug market which has become a battle between two heavyweights the device market is headed down this same path with Medtronic and JNJ both battling for the heavyweight crown. Yes, this is getting very interesting indeed.